Crude oil prices to not stay low for long; Kotak maintains $70/bbl target

Analysts at Kotak Securities do not expect crude oil prices to stay lower for long and maintain a target of $70 per barrel amid the increasingly tougher stance by the United States (US) and European Union (EU) on Russian oil exports. 

 

The brokerage noted that geopolitical concerns have risen as the US takes an aggressive stance on Russia’s energy exports. Further, the firm said Opec+ has capitalised on firmer oil prices by fast-tracking the reversal of earlier voluntary cuts. Even after Opec+ raising output by around 2 million barrels per day over the past year, this has not resulted in high inventory levels in the US or Europe.

 

   

Despite the overall muted global demand, observed inventories in key regions that report have not increased, and oil prices have remained resilient. 

 

On Monday, crude oil prices fell nearly 1 per cent amid reports that Opec+ considered a larger November supply hike. Brent crude price was down 0.51 per cent at 69.77 per barrel, while WTI crude prices were lower by 0.70 per cent at 65.26 per barrel, as of 11:55 AM IST.  

 

Kotak Securities added that, counterintuitively, China's crude imports remain high despite weakening demand, suggesting stockpiling amid fears of supply disruptions. With tougher measures likely from the US and EU, the firm expects potential disruptions in Russian oil exports, which could keep prices elevated. Kotak Securities maintains an oil price assumption of $70 per barrel.

 

Despite Western countries imposing sanctions and gradually widening measures, Russia's oil exports have not been significantly impacted so far, Kotak said. The reduced imports by EU countries have been offset by higher imports by India, China, Turkey and a few others, it said. "While there has been limited success so far, we believe the risk of disruption is rising."

 

In Kotak's view, all Russian exports cannot be stopped, but even a reduction of 2-3 mb/d can lead to elevated oil prices. "Despite elevated Opec+ production and weak global demand, we do not expect the oil price to decline sharply and remain low for longer."

 

With oil prices easing to $65-70 per barrel (WTI at $62-67 per barrel), incremental shale oil production is expected to slow, Kotak said. For US shale producers, breakeven prices stand at around US$65 per barrel, it said.