View: Crude oil may remain volatile as OPEC+ uncertainty lingers
16 Jul 2021
It was a volatile week for crude oil and more is in store. The week began on a firm note and tested the highest level since November 2014 in reaction to fallout of OPEC talks over production policy. OPEC and allies called off the meeting amid disagreement over extending the current production deal from April 2022 to end of the year without altering the reference level from which production cuts are calculated. Lack of a deal to hike production starting next month fueled concerns about tighter supply and pushed prices higher.
Crude oil, however, retreated sharply as market players assessed other implications of the fallout of talks. Lack of production policy could lead individual countries to work on their own policy and some may raise output in view of rising prices and recovery in demand. Crude was also pressurized by renewed virus concerns, mixed economic numbers, slowdown in China and Fed’s monetary tightening concerns.
The market, however, stabilized following the inventory report which noted a sharp decline in US crude oil and gasoline stocks.
Crude oil also gained support from increased tensions between US and Iran which dented expectations that the nuclear deal could be revived soon. Crude oil has rallied sharply in the last few weeks and OPEC+ related uncertainty made it vulnerable to profit taking. With mixed factors and OPEC uncertainty, crude oil may remain volatile.
However, the general bias may be on the downside on prospect of higher supply and renewed virus concerns. While OPEC may remain in focus, crude may also get affected by monthly outlook by IEA and OPEC. We expect the price to trade within a range of Rs 5,700-5,290 with a sideways to weak bias.
(Ravindra Rao, CMT, EPAT, is VP-Head, Commodity Research)