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Oil drops over $1 after US macro data, OPEC forecast weighs on investor sentiment; Brent at $82/bbl

International crude oil prices declined on Tuesday, May 14, after the latest US macroeconomic data suggested inflation remains sticky in the world’s largest oil consumer. The Organisation of Petroleum Exporting Countries (OPEC) released it monthly report and maintained its demand forecast for the year, which also weighed on investor sentiment today.
Brent crude futures last fell $1.08 to $82.28 a barrel, while the US West Texas Intermediate crude futures (WTI) lost $1.17 to $77.95 per barrel on Tuesday. Coming to domestic prices, crude oil futures last traded 0.02 per cent higher at 6,513 per barrel on the multi commodity exchange (MCX).

Also Read: Fed policy rate to stay at 2-decade high-mark, US inflation may not drop significantly in 2024: Powell

What’s dragging crude oil prices?

-US producer prices increased more than expected in April amid strong gains in the costs of services and goods, indicating that inflation remained elevated early in the second quarter. Borrowing costs in the US have been stuck at high levels since last July as the government aims to quash sticky inflation.

-Federal Reserve Chair Jerome Powell said he expects US inflation to continue declining through 2024 but warned his confidence in those decreases has fallen after prices rose more quickly than expected through the first quarter.

“I expect that inflation will move back down … on a monthly basis to levels that were more like the lower readings that we were having last year”, Powell said at a banking event in Amsterdam, adding, “I would say my confidence in that is not as high as it was.”
-The OPEC stuck to its forecast for relatively strong growth in global oil demand in 2024 and said there was a chance the world economy could do better than expected this year. OPEC’s monthly report said world oil demand will rise by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025.
-Energy markets were also watching wildfires in remote western Canada that could disrupt the country’s oil supply. Firefighters on Monday were racing to contain one blaze in British Columbia and two in Alberta near the heart of the country’s oil sands industry.
-Spreading wildfires in Alberta oil sands impose downside risks to our constructive Canada production outlook as massive fires in the same region eight years ago triggered a temporary shutdown of over 1 million bpd oil production,” said Goldman Sachs analysts in a note.

Where are prices headed?

Analysts said that although no operational disruptions have been reported, Canada’s 3.3 million barrel per day production capacity was “very likely to be affected. The International Energy Agency (IEA) will gauge the supply-demand dynamics and the weekly US oil and its bi-products inventory data from EIA on Wednesday – ahead to beginning of the summer driving season in US.

Pranav Mer, Vice President, EBG – Commodity & Currency Research, JM Financial Services Ltd said that crude oil prices are stuck in a range ahead of the important data’s due this week. ‘’Technically, momentum remains down till prices are below 6,660/6,700, while on the downside support holds at 6,500/ 6,430,” said Mer.
‘’Markets also look ahead to OPEC+ meeting in early June where the cartel is expected to extend the output cuts through 2H 2024, further tightening the markets during the peak demand season,” said Kaynat Chainwala – Senior Manager – Commodities Research, Kotak Securities.
Crude oil rose more than one per cent on Monday in the international markets driven by optimism regarding Chinese demand and concerns over global supply. The release of Chinese inflation data over the weekend indicated signs of economic recovery, bolstering crude oil prices.
The threat of wildfires in China, which could potentially disrupt production capacity by approximately one million barrels per day, further contributed to the upward pressure on crude oil prices.
‘’Support for crude oil is anticipated around $78.10–$77.50, while resistance levels are expected at $79.20–$79.90. In terms of INR, crude oil is expected to find support within the range of Rs6,540–6,470, with resistance projected at 6,680–6,750,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
The US consumer price index (CPI) based inflation data, expected tomorrow (May 15), will have a sharper impact on the timing of the much-awaited interest rate cut, which could spur economic growth and therefore oil demand.

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