By Royce Varghese
WTI Crude oil futures tumbled almost 10% in the previous week and closed at $89.01 per bbl amid declining US gasoline demand in the peak summer driving season, unexpected buildup in EIA inventories and rising Libyan output. Prices fell to pre-war levels, the lowest in six months on increasing evidence that aggressive central bank tightening from the central banks might spur demand sapping recession. The rise in inventories came despite a weak SPR drawdown, which used to be around 1 mbpd earlier in the previous weeks. Americans are officially driving less than they did in the summer of 2020, when pandemic travel restrictions all but halted movement. The four-week average of US gasoline consumption, the best gauge for the country’s demand, is now more than 1 million barrels a day below pre-Covid seasonal norms, according to EIA.
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Meanwhile, the Bank of England warned that the UK economy is going into recession and is expected to last until 2023, which further weighed down on the prices. The slump came even as Saudi Arabia has boosted prices, and OPEC+ warned of scant spare capacity. MCX Crude oil August futures closed at Rs.7,086 per bbl, down 9.64% in the previous week.
Crude oil outlook for the week
Recovery in Chinese oil demand is providing some support for crude oil prices. But the sustainability of the bounce back is under question. US CPI data due on Wednesday is expected to come at 8.7% for July, not far from a 40 year high of 9.1%. Higher CPI numbers might raise the odds that the Fed is going to be very aggressive in the September meeting, which might induce a recession and curb oil demand.
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EIA inventory data due on Wednesday can be closely watched for more cues on any recovery in US gasoline demand. Monthly reports from EIA, IEA and OPEC are also due this week, where latest projections on demand and consumption will be released. Volatility could be seen for the week and we expect MCX Crude oil August futures to decline towards Rs.6,700 per bbl, if CPI numbers comes in line with forecasts
(Royce Varghese, Fundamental Analyst, Currency & Energy, Anand Rathi Shares and Stock Brokers. Views expressed are the author’s own.)