International crude oil prices steadied on Tuesday, May 7, as easing supply concerns and signs of weakening demand countered fears of escalation in the Middle East. Traders largely looked past escalating tensions in the Middle East, where the Israeli military seized control of the Rafah border crossing between the Gaza Strip and Egypt and its tanks pushed into the southern Gazan town of Rafah, as mediators struggled to secure a ceasefire agreement.
Brent crude futures dropped 36 cents, or 0.4 per cent, to $82.97 per barrel, while the US West Texas Intermediate (WTI) crude futures were down 28 cents, or 0.4 per cent, to $78.20 a barrel. The first-month Brent contract’s premium to the six-month contract slipped to $2.81 a barrel, its lowest since mid-February, signaling easing worries about tight supplies, as per news agency Reuters.
Last week, Brent and WTI had posted their steepest weekly losses in three months as weak US jobs data fueled hopes for interest rate cuts by the US Federal Reserve. On the domestic front, crude oil futures last traded 0.84 per cent higher at ₹6,597 per barrel on the multi commodity exchange (MCX).
What’s dragging crude oil prices?
-Current inventory data shows crude oil and petroleum supplies are running 1.1 million barrel per day above forecasts in countries that are part of the Organisation For Economic Co-operation and Development, according to an analysis by energy brokerage StoneX.
-Analysts said that crude traders seem to have developed a higher tolerance for geopolitical risk in the Middle East and its potential to disrupt the global oil supply. Instead, their focus appears directed towards the uncertainties surrounding global economic growth prospects and the anticipated impact of sluggish growth on oil demand.
-A stronger US dollar also weighed on oil prices, making crude more expensive for traders holding other currencies. Oil prices found some support after the US Department of Energy announced solicitations for up to 3.3 million barrels of oil for replenishment of the country’s Strategic Petroleum Reserve.
-The US Energy Information Administration will post its monthly short-term energy outlook on Tuesday. Its weekly update on stockpiles is due on Wednesday. US crude oil and product stockpiles were expected to have fallen last week. Crude inventories could have fallen by about 1.2 million barrels in the week to May 3, based on analyst forecasts by Reuters.
Where are prices headed?
WTI crude oil futures snapped a six day of losing streak and slightly edged higher by almost one per cent on Monday, as ceasefire talks between Israel and Hamas appeared to have stalled, with Israel pressing ahead with strikes in the southern Gaza city of Rafah. Even though Hamas agreed to a ceasefire proposal on Monday, Israel said the terms did not meet its demands, as per analysts.
‘’Further boost came from Saudi Arabia raising the OSP for its crude sold to Asia, Northwest Europe and the Mediterranean in June on the back of a strong demand outlook this summer. Still, oil prices are hovering near a five month low as investors weigh a possible resolution in middle-east,” said Kaynat Chainwala, Senior Manager – Commodity Research, Kotak Securities.
Analysts also noted that Israeli Prime Minister Netanyahu’s remarks regarding the deal, facilitated by Egypt and Qatar, fell short of Israel’s expectations, adding to the uncertainty. This uncertainty has bolstered oil prices as concerns persist over the outcome of ceasefire negotiations. Further escalation of tensions in the Middle East could sustain support for crude oil prices. Additionally, OPEC+ output cuts continue to underpin global oil prices.
‘’Support for crude oil is anticipated around $77.70–$77.00, with resistance likely at $79.10-$79.90. In terms of INR, crude oil is expected to find support between ₹6,470-6,390, while resistance is projected at ₹6,610-6,700,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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