Crude Oil: Check trading strategy, target price and other key levels here

OPEC restoration threaten crude market balance 

Crude Oil started on a softer note to the fresh month trading at $73.90 on Tuesday in Asian markets, oil prices wiped out most of its gains for the year to stand 3 per cent year-to-date (YTD) from 20 per cent up in April this year when prices hovered around $86. Oil recorded its first back-to-back monthly decline amid signs of sluggish demand in China and the United States raised concerns about future consumption growth. With momentum skewed to the downside, there is a real risk that prices could revisit a range at multi-month lows.

OPEC+ restoration of production cuts

The market was impacted by OPEC’s plan to increase production by 180,000 bpd starting in October, partially reversing recent cuts while maintaining other reductions until late 2025. Eight OPEC+ members are scheduled to boost output by 180,000 barrels per day (bpd) in October as part of a plan to begin unwinding their most recent layer of supply cuts of 2.2 million bpd while keeping other cuts in place until the end of 2025. There are fears for an even larger jump in production, which could tilt the demand-supply balance even more negatively and apply stronger downside pressure to prices. The early survey for OPEC’s August production report showed that the group pumped 26.36 million barrels per day last month, down 340,000 bpd from July, the lowest total since January 2024. Global crude oil market observed a surplus of 0.3 mbpd in the last three months due to demand deterioration from China.  

Libyan threat

The halt to Libya's crude exports threatens to take out more than 1 million bpd of crude off the global market.  Libya's current production at around 300,000 b/d, based on official documents and shipping sources. This is down from 960,000 b/d on 26 August when the oil blockade was announced. Output was 1.2mn-1.25mn b/d in early August, before the Repsol-led El Sharara field was forcibly shut down by the Libyan National Army. The Libyan situation will be crucial as any restoration of production from Libya would see a sharp selloff in oil prices.

Economic slowdown

China factory activities plunged to six months low of 49.1 in August, while new home sales plunged 27 per cent y/y and 10 m/m heightens concerns that the Chinese economy will miss growth targets. China remained the major cog in Crude oil under performance in last three months as the data showed that imports from the world’s largest oil importer fell 12 percent in July following an 11 per cent annual decline in June. On the other hand EIA reported that the US oil consumption in June dropped to seasonal lows last registered during the COVID-19 pandemic in 2020, although US Q2 GDP had been revised up but that was due to higher consumption the industrial growth has remained in contraction.

OutlookCrude oil is whipsawed between expectation of growing supplies from OPEC+, geo-politics and slowdown in major energy consuming hubs. The poor economic numbers from China along with OPEC+ plans to go ahead with restoration of gradual output cuts, is likely to keep prices under pressure in coming weeks. WTI is holding support at $71 followed by $70 and resistance stays at $76..

WTI Crude oil Oct: Support: $71, Resistance : $76
 

MCX Crude Sep: Support : 6000 , Resistance : 6350

(Disclaimer: Mohammed Imran is a research analyst at Sharekhan by BNP Paribas. Views expressed are his own.)