Oil strategy, Nov 5: How to trade crude oil as Opec+ delays production hike

Crude oil price today: Sharekhan remains confident of oil prices heading lower towards $65 in Q1-2025, while in short term, prices could see WTI prices trading in broader range of $75-$66

Weak demand and higher supplies to keep oil market bearish in medium term 

 

Oil prices have edged higher on the news that few of the Opec members have decided to delay its 180,000- barrels per day (bpd) crude production increase by a month, the second straight month it postponed the anticipated supply increase. The next Opec and non-Opec ministerial meeting and the next Joint Ministerial Monitoring Committee meeting are both scheduled to be held on December 1. 

 

On Monday, WTI for December delivery climbed 2.8 per cent to settle at $71.47 a barrel in New York and Brent for January settlement rose 2.7 per cent to settle at $75.08 a barrel. 

 

Oil prices have become increasingly volatile, with concerns of an oversupply next year and lacklustre demand in top importer China vying against unrest in the Middle East, which supplies about a third of the world’s crude. 

 

Crude demand in China has weakened and is a bearish factor for oil prices. China's total apparent oil demand in September fell 6.98 per cent year-on-year (Y-o-Y) to 14.176 million bpd and total Chinese oil demand this year (Jan-Sept) is down 3.8 per cent Y-o-Y to 13.99 million bpd.

 

The preliminary survey for October production numbers for Opec are showing that output increased by 370,000 bpd month-on-month (M-o-M) to 26.9 million bpd. This increase was driven by the return of supply from Libya, where output increased by 500,000 bpd M-o-M. Meanwhile, Iraqi output fell by 90,000 bpd M-o-M to 4.13 million bpd, though this still leaves output above Iraq's production target of 4 million bpd.

 

The last week's EIA weekly report showed that the US crude oil inventories, as of October 25, were 4.2 per cent below the seasonal 5-year average, gasoline inventories were 3.5 per cent below the seasonal 5-year average, and distillate inventories were 8.8 per cent below the 5-year seasonal average. The US crude oil production in the week ending October 25 was unchanged week-on-week at a record 13.5 million bpd.

 

Oil markets are lined up with key events ahead in the week, such as a meeting of China's top legislative body. Saudi Aramco is scheduled to release its official prices for December, with the producer expected to lower its rates for Asia.

 

The latest macroeconomic numbers from China are looking promising, as the  manufacturing and services index have expanded in private as well as government sector. However, it would be too early to say that economy is back on track but possibly the positive green shoots of stimulus and reforms are visible on the underlying, which has helped crude prices recovering from last week's low.

 

Outlook 

 

The geopolitics had looked contained until the counter retaliatory attack by Israel a week back to which Iranian supreme leader Ayatollah Ali Khamenei warned of a "crushing response" to Israel's recent air strikes on Iran. However, geopolitical risk premium which has ebbed and flowed all year almost evaporated following Israel's weekend strike on Iran, largely due to the strikes avoiding critical energy infrastructure. While we still see oil market to remain in surplus despite of Opec+ making efforts to extend the cuts, we remain confident of oil prices heading lower towards $65 in Q1-2025, while in short term prices could see WTI prices trading in broader range of $75-$66.

 

WTI Crude oil Dec: Support: $68, Resistance: $73

 

MCX Crude Nov: Support: 5,800, Resistance: 6,150

 

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