Tag: crude oil prices

This expert does not see oil prices receding much from current levels

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Vandana Hari, Founder and CEO of Vanda Insights, suggests that whether Brent crude stabilises around the $75 to $80 per barrel range or stays nearer to $85 to $90 per barrel depends largely on the developments in the conflicts between Iran and Israel, as well as Ukraine and Russia.

According to Vandana, the geopolitical tensions have resulted in a premium in crude of $12-15 per barrel taking it to $90 per barrel currently. “I don’t see that receding much,” she said.

She believes a substantial pullback will be needed. “Some sort of a ceasefire agreement, some temporary rapprochement in Ghaza and then followed by a more enduring peace deal over there. That premium remains intact. There is a bit of premium on account of the heightened warfare between Ukraine and Russia as well,” she explained.

Oil prices jumped $3 a barrel on Friday in reaction to unconfirmed reports on X that explosions had occurred in Iran, sparking concerns that Middle East oil supply could be disrupted.

Brent futures jumped $3.03, or 3.5%, to $90.14 a barrel by 0147 GMT, and US West Texas Intermediate crude rose $3.03, or 3.7%, to $85.76 per barrel.

Amrita Sen, Founder and Director-Research, Energy Aspects sees the potential for it to reach triple-digits if geopolitical tensions get out of hand.

“The one that is potentially a threat to supply and probably the biggest threat this year is Ukraine-Russia,” she said.

Oil marketing companies (OMCs) also indicated that with two to three months of contracts already in place, they may have headroom to deal with higher crude oil prices for now. However, if crude continues at $90 beyond May–June, it may pose some concerns. Brent crude prices have been hovering around this level since September last year, after the OPEC+ extended production cuts.

For more, watch the accompanying video

With inputs from agencies

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Will crude oil prices reach triple digits? An energy expert weighs in

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While Brent crude prices are generally expected to hover around $90 per barrel mark, Amrita Sen, Founder and Director-Research, Energy Aspects sees the potential for it to reach triple-digits if geopolitical tensions get out of hand.

“The one that is potentially a threat to supply and probably the biggest threat this year is Ukraine-Russia,” she said.

Global benchmark Brent traded below $88 a barrel after slumping by 3% on April 17, while West Texas Intermediate was near $83. US crude inventories rose by 2.7 million barrels last week, hitting the highest level since last June, while gauges of fuel demand declined.

Sen, however, does not foresee any significant supply disruption for oil and gas from geopolitical tensions.

“But that doesn’t mean that the tensions are going to go away anytime soon and we do believe that the market will remain fairly choppy,” she said.

Also Read | Iran-Israel tensions: Don’t expect crude oil at levels seen during the Russia-Ukraine war, says govt official

She believes, that the US is probably going to draw down 30 million from the strategic reserves to keep prices low but that could be probably at $100 per barrel.

“So we are still $10 per barrel away from that but we do believe that the US is going to turn a blind eye or continue to turn a blind eye towards Iran, maybe they do not reimpose sanctions on Venezuela which will benefit Indian refiners a lot,” she said.

Also Read | Windfall tax on crude up 96% in April with two consecutive tax hikes

At the end of the day, the fundamentals are strong enough that oil prices are not going to go down too much, she said.

Indian demand, she believes, continues to remain strong.

“Overall, and most structurally, we remain very constructive on the gasoline side, more people driving, better roads and infrastructure, and with elections coming up, there is going to be a lot of support for demand,” she explained.

Also Read | Oil prices dip as demand concerns outweigh Middle East supply fears

She expects the trade disruptions caused by the Red Sea crisis to continue.

But she also senses a bit of optimism around global demand because of the expectations of a rate cut by the US Federal Reserve.

“Our view also is that the Fed is going to cut rates but I would warn that if oil prices were to spike higher and inflation concerns come back, I think it will be a lot harder for the Fed to cut three times as the market expects,” she stated.

For more, watch the accompanying video

With input from agencies

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Nomura’s Sonal Varma discusses the triple threats facing India and other EMs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Sonal Varma, MD and Chief Economist for India and Asia excluding Japan at Nomura Financial Advisory and Securities (India), identifies three major threats facing India and other emerging markets: the volatility and uncertain future direction of oil prices; the persistent high interest rates in the US, with ongoing debates about whether the Federal Reserve will cut rates this year; and the impact of a stronger dollar on capital flows and currency stability.

“If the uncertainty and tight financial conditions continue for a longer period then there would be some downside risk to growth over the medium-term,” Varma said.

But India has a couple of buffers in place in terms of foreign exchange reserves.

India’s forex reserves hit a new high of $648.562 billion for the week ending April 5, marking a $2.98 billion increase, as per the Reserve Bank of India.

“I would say until at least $100-$110 per barrel on Brent, we don’t think the pass through domestically to consumers is going to happen. So, uncertainty is quite high risks have increased, but still in a wait and watch mode for now,” she said.

Oil gained as Israel vowed to respond to an unprecedented attack by Iran, keeping tensions elevated in the Middle East.

Global benchmark Brent climbed toward $91 a barrel after a modest drop on Monday, while West Texas Intermediate was near $86.

Also Read | World united on how Israel should respond to Iran attack

On oil prices, Varma says, the current base case is that Brent oil prices will stay around $90 per barrel if the Middle-Eastern situation does not escalate.

She pointed out that as far as India’s macro sensitivities are concerned, every 10% increase in oil prices has roughly around 30 basis point impact on inflation, about 15 basis point on growth, and around 30 to 40 basis point on the current account balance.

One basis point is one-hundredth of a percentage point or 0.01%.

However, the spillover from higher oil prices to inflation is not currently clear as oil marketing companies are likely to absorb some of the price increase initially.

Madan Sabnavis, Chief Economist at Bank of Baroda (BoB). concurred with Varma that there is high probability of oil prices staying in the $90 per barrel range.

Also Read | Oil prices see muted open after Iran’s strike against Israel

DP Srivastava, Former Ambassador to Iran, who also participated in the discussion with Varma noted, “In a war situation, neither side can anticipate what the other side can do. In case the Israel takes US’ advice and does not retaliate or does a symbolic action, the situation will subside but in case it decides to up the ante, there will be a counter strike by Iran.”

Also Read | Iran-Israel conflict: Experts call for diplomatic solution

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Oil prices see muted open after Iran’s strike against Israel

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil shrugged off Iran’s unprecedented attack on Israel, with gains held in check by speculation that the conflict would remain contained as leading powers including the US urged restraint.

Global crude benchmark Brent crude initially rose just 0.7% to $91.05 a barrel in early trade, before trading flat. More than 300 missiles and drones were fired by Iran at the weekend, the first time it has struck Israel from its soil, though most were intercepted. The attack — which had been expected for days — came in retaliation for a strike in Syria that killed top Iranian military officers.

Oil has been one of the strongest performers in commodities this year as OPEC+ keeps a tight rein on supply to drain inventories and support prices. The latest attack escalates tensions in a region that produces about a third of the world’s crude, and represents the latest twist in a showdown that’s followed the assault by Tehran-backed Hamas against Israel last October. Still, the Iranian mission to the United Nations said the issue “can be deemed concluded,” reducing for now the risks of a wider conflict.

Oil markets have tightened significantly in recent months, lifting energy costs and posing a headache for central bankers as they seek to drive home their push to quell inflation. Ahead of the Tehran’s weekend strike, crude analysts had already been addressing the possibility that prices could once again hit $100 a barrel.

OPEC — the producers’ cartel that counts Iran as a founding member — said last week that oil would need to be closely watched in the coming months to ensure “a sound and sustainable market balance,” according to a monthly report. The International Energy Agency, meanwhile, put the spotlight on another conflict, saying Ukrainian drone attacks against Russian oil refineries risked disrupting petroleum product markets.

The Iranian strike came as demand is ramping up. US refiners are preparing to boost fuel production for the summer, the traditional driving season when consumption peaks. In Asia, recent macro-economic prints from China have suggested that the economy may be turning the corner, bolstering the outlook for fuel consumption.

Shipping risks have also been in focus after Iran seized a vessel, the MSC Aries, near the key Strait of Hormuz waterway shortly before the strikes against Israel. The ship’s beneficial owner is part of Israel-linked Zodiac Group, according to data compiled by Bloomberg. The move raises concerns over the safety of vessels in the region, adding to previous logistical disruptions from attacks in the Red Sea.

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Oil prices hold gains with pockets of strength across physical markets

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil steadied after a gain, with pockets of strength in physical markets supporting wider sentiment.

Global benchmark Brent traded above $82 a barrel after rising by 1.1% on Monday, while West Texas Intermediate was below $78 a barrel.

There have been signs of recent buying activity from refineries in the world’s two largest economies, the US and China, which has pushed prices of US grades higher. Widely watched time spreads have also strengthened, signaling near-term tightness.

Oil is grinding its way toward a second monthly advance, although it’s yet to break decisively out of its recent, narrow range. While tensions in the Middle East and OPEC+ supply curbs have supported crude prices, higher production from outside the group, including the US, has capped the gains.

The market’s opposing drivers have prompted both Goldman Sachs Group Inc. and Bank of America Corp. to predict that rangebound trading will persist near term. Goldman Sachs sees a $20 band centered on $70 a barrel, with muted volatility, while its rival expects oil to hold between $60 and $80.

“While crude oil markets have been trading in a range, they’ve performed relatively well, year-to-date, especially considering the weakness of the broader commodity complex,” said Han Zhong Liang, an investment strategist at Standard Chartered Plc. Better-than-expected compliance from OPEC+ members with supply curbs has been supportive, he added.

Brent’s prompt spread — the difference between its two nearest contracts — has been widening into a deeper backwardation, suggesting tighter conditions. The gap was last at 83 cents a barrel, compared with 37 cents four weeks ago. The corresponding metric for US benchmark WTI has also strengthened.

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Oil ends lower, posts weekly decline as US rate cut hopes dim

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil prices fell nearly 3% lower on Friday and posted a weekly decline after a U.S. central bank policymaker indicated interest rate cuts could be delayed by at least two more months.

Brent crude futures settled down $2.05, or 2.5%, at $81.62 a barrel, while U.S. West Texas Intermediate crude futures (WTI) were down $2.12, or 2.7%, to $76.49.

For the week, Brent declined about 2% and WTI fell more than 3%. However, indications of healthy fuel demand and supply concerns could revive prices in the coming days.

Federal Reserve policymakers should delay U.S. interest rate cuts by at least another couple of months, Fed Governor Christopher Waller said on Thursday, which could slow economic growth and curb oil demand.

The Fed has held its policy rate steady in a 5.25% to 5.5% range since last July. Minutes of its meeting last month show most central bankers were worried about moving too quickly to ease policy.

“The entire energy complex is reacting, because if inflation begins to come back it will slow demand for energy products,” said Tim Snyder, economist at Matador Economics.

“That is not something the market wants to digest right now, especially as it is trying to figure out a direction,” he added.

Some analysts, however, say demand has remained largely healthy despite the impact of high interest rates, including in the United States.

JPMorgan’s demand indicators are showing oil demand rising by 1.7 million barrels per day (bpd) month over month through Feb. 21, its analysts said in a note.

“This compares to a 1.6 million bpd increase observed during the prior week, likely benefiting from increased travel demand in China and Europe,” the analysts said.

Meanwhile, Gaza truce talks were underway in Paris in what appears to be the most serious push in weeks to halt the conflict in Palestine and see Israeli and foreign hostages released.

Ceasefire talks could prompt the market to anticipate an easing of geopolitical tensions, Tim Evans, an independent oil market analyst, said in a note.

Still, tensions in the Red Sea continued, with attacks by Iran-backed Houthi militants near Yemen on Thursday forcing more shipping vessels to divert from the trade route.

U.S. energy firms this week added the most oil rigs since November, and the most in a month since October 2022, energy services firm Baker Hughes said.

The oil rig count, an early indicator of future output, rose by six to 503 this week, and increased by four this month.

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Oil remains near the highest this year as Middle East tensions stoke bullishness

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil edged lower, but remained near the highest level this year as persistent tensions in the Middle East added a risk premium to the market.

Brent crude traded near $83 a barrel after rallying 8% over the past two weeks, while West Texas Intermediate was close to $79.

Qatar said negotiations aimed at securing an Israel-Hamas cease-fire and the release of hostages haven’t progressed as hoped, while Israel warned it could launch a ground offensive in the Rafah area of Gaza as early as mid-March.

The ratcheting up of geopolitical risks in a region that’s the source of around a third of the world’s is supporting prices, with bullish wagers for global benchmark Brent at the highest since 2021. A holiday in the US will likely reduce trading on Monday, although that could be partially offset by the reopening of Chinese markets after the weeklong Lunar New Year holidays.

Brent for April settlement fell 0.4% to $83.16 a barrel at 7:53 AM in Singapore.

WTI for March delivery declined 0.2% to $79.03 a barrel.

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Experts weigh in on the outlook for oil and gas companies in 2024

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil public sector undertakings (PSUs) like Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL) and Indian Oil Corporation (IOC) have been buzzing in trade lately. JPMorgan has raised target prices for all the three players.

The revised target price for BPCL is ₹720. For HPCL, the target is ₹520, and for IOCL, it is ₹205.

Probal Sen, Energy Analyst at ICICI Securities believes the companies will continue to make reasonable marketing margins as long as crude remains below $85 per barrel.

Amrita Sen, Founder & Director-Research, Energy Aspects believes that the crude prices will average in around $80 per barrel in 2024.

The Organisation of the Petroleum Exporting Countries (OPEC) is very resilient in terms of making sure that the oil market doesn’t go into oversupply, she said, adding that “Average Brent mid-$80 per barrel is our forecast at least. We are not expecting fireworks this year,” she added.

Brokerage firm Morgan Stanley wrote in a recent note that India’s downstream oil refiners are in a multi-year re-rating and earnings upgrade cycle and remain “underappreciated” even after the sector’s recent outperformance.

For more, watch the accompanying video

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Oil holds biggest loss in three weeks on robust US crude output

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Oil held the biggest loss in three weeks on signs of rising US crude production, which added to a robust supply outlook and overshadowed continuing tensions in the Middle East.

West Texas Intermediate was little changed near $76 a barrel after losing 2.5% in the previous session, the biggest decline since early January. Brent also fell. US oil output rose to 13.3 million barrels a day in November, surpassing a previous record in September, according to data on Wednesday.

The market continues to watch for the US response to a deadly attack in Jordan over the weekend that killed American troops. President Joe Biden said Iran was responsible for providing the weaponry used in the strike, but Tehran has denied involvement and warned of retaliation.

Oil still capped its first monthly gain in four months in January following an escalation of attacks on commercial shipping in the Red Sea by Yemen-based Houthi rebels. However, concerns around demand in key consumers and strong supply from non-OPEC producers has kept a lid on price gains.

Weekly US data also showed oil output back at 13 million barrels a day. The nation’s crude inventories rose for the first time in three weeks too, according to figures from the Energy Information Administration.

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Arvind Sanger cautions against inflation risks stemming from Suez Canal crisis

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Market momentum is currently driven by beliefs that inflation is under control and interest rate cuts in the US might begin as early as the second quarter of next year. However, Arvind Sanger, Managing Partner at Geosphere Capital Management, cautions against unforeseen risks such as the situation in the Red Sea that could impact energy demand and prices, reigniting inflation.

Regarding investment opportunities, Sanger is selective about Public Sector Undertakings (PSUs), preferring investments in private companies where management’s interests align with shareholder value. He acknowledges PSUs as potential short-term trades but has reservations about them as long-term investments. Sanger prefers only a couple of high-quality PSUs in the power sector, and sees State Bank of India (SBI) as an exception among major banks.

Also Read | PSU Banks like SBI, Canara, Union poised for re-rating, according to this analyst

Looking ahead to 2024, Sanger sees a generally positive outlook for the Indian but identified potential challenges like persistent inflation, fluctuations in foreign investment, and commodity price increases, particularly if China’s economy rebounds.

Despite these risks, he views the fundamental story in India as strong, except for some softness in FMCG and rural demand.

Sanger remains optimistic about election spending boosting rural demand and doesn’t see any major obstacles, though he anticipates pullbacks that could offer buying opportunities in high-quality companies.

For the entire interview, watch the accompanying video

Also, catch all the live updates on markets with CNBC-TV18.com’s blog

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow