Crude Oil: Here's your trading strategy for October 17; target price & more

Crude may retreat further in absence fresh conflict in middle east

Crude oil prices have been steadier on Thursday around $70.50/b in Asian hours, ahead of the weekly EIA inventory release from the US. WTI crude oil futures fell by 0.27 per cent to $70.39, and Brent crude edged down by 0.04 per cent to $74.22, following a 4 per cent decline on Tuesday amid continued uncertainty over the Middle East conflict. According to the API's Weekly Statistical Bulletin, US crude oil inventories decreased by 1.58 million barrels for the week ending October 11, 2024, following a significant increase of 10.9 million barrels the previous week. This marks the sixth draw in the past eight weeks, contrary to market expectations of a 2.3 million barrel build.

China’s economic slowdown hurts crude demand

The demand side had been a big challenge for crude oil post covid timeline and China remains the biggest hurdle for price underperformance. All of the leading energy organisations (OPEC, IEA and EIA) have largely been bearish for the oil market, with the agency revising down their demand estimates for a third consecutive month this year due to a further slowdown expected in Chinese consumption. Chinese oil imports fell last month as refiners grappled with weak margins and shut units for planned maintenance.  Inflows sank to 45.5 million tons in September, That’s 7.4 per cent lower than August and equal to 11.1 million barrels a day and we expect that going into 4th quarter Chinese imports are likely to average around 11 mbpd and  oil demand is forecast to grow by no more than 300,000 barrels a day next year, The nation that has propelled global demand growth for the past two decades is in the midst of a structural slowdown thanks to the uptake of electric cars and liquefied natural gas-fueled truck.

Global crude oil balance to remain in surplus 

Global Crude oil market balance remains in surplus despite OPEC+ trying their best efforts to curb 6 per cent of global production by voluntarily cutting the output in the last 2 years.  However, OPEC+ on September 5 agreed to pause its scheduled crude production hike of 180,000 bpd in October and November due to recent weakness in crude prices and signs of fragile global energy demand. But it is expected that Saudi Arabia is ready to abandon its unofficial oil price target of $100 a barrel to regain its market share and is committed to returning its crude production as planned on December 1.  OPEC crude production in September fell -480,000 bpd to an 8-month low of 26.51 million bpd. Non-OPEC+ output, led by the Americas, is expected to expand by 1.5 million bpd while the OPEC+ alliance will see production contract by 820,000 bpd. Overall we expect the global market is likely to see a surplus of 1-1.5 million barrels per day in 2025. In 2025, global oil demand is projected to reach 103.84 million bpd, with a yearly growth of 998,000 bpd. 

Outlook

As China’s stimulus failed to lift investors’ confidence and somewhat lacked the clarity on the actual numbers, along with disappointing trade data, we expect the economic sluggishness to continue, while Israel has indicated a limited retaliation to military infrastructure of Iran, we believe that geo-political risks will be contained in coming weeks. We expect WTI to trade in a broader range of $67-$75, hence any further dips could be used for buying opportunities for short term, but in medium to long term WTI is heading for lower levels of $65-$62.

WTI Crude oil Nov :Support: $67, Resistance : $74

MCX Crude Oct:  Support : 5750,  Resistance : 6250.

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