Commodity Talk: Currency fluctuations to keep oil prices volatile, says Anuj Gupta of IIFL Securities

“Amid currency fluctuations, traders and investors are advised to remain cautious while trading in crude oil futures as there could be some volatility in the markets. We are recommending ‘buy on dips’ in crude oil for mid- to long-term as demand is expected to increase for upcoming winter and stormy season ahead,” says Anuj Gupta Vice President (VP), Commodity and Currency Research at IIFL Securities. Edited excerpts:

Q: How do you see Saudi Arabia’s decision to cut oil production and what does it tell about the global oil demand situation?

Saudi Arabia said it would start reducing its daily oil output by 1 million barrels in July to help maintain the “stability and balance of the oil markets.” Although the nation asserts that it does not base oil production decisions on crude cost, the action is widely regarded as an effort to support oil prices in reaction to the uncertainties surrounding the world economy and worries that global demand may decline.

Although the further cutbacks proposed by Saudi Arabia are being made unilaterally, the agreement was reached during an OPEC+ meeting in Vienna.

According to Saudi Arabia, the cuts may be prolonged and will endure for at least a month. Additionally, OPEC+ nations decided to prolong the end-of-2024 oil production limits they announced in April, cutting the quantity of crude they export onto the global market by more than 1 million barrels per day. Approximately 40% of the world’s crude oil is produced by OPEC+ nations.

Where do you see the price going by the end of this year for Brent and WTI?

Prices may move between $65 and $90 levels by the end of this year and we expect it may test $80 to $85 levels in the near term. However, the movement in crude oil prices is likely to remain range bound.
India’s oil imports from Russia saw a jump in May and now accounts for the largest share in terms of imports from a single country. Your take!The third-largest oil consumer in the world, India, saw a 13.4% increase in crude oil imports in May compared to a year earlier as refiners stocked up cheaper Russian supply to meet rising demand.

According to information provided by the Petroleum Planning and Analysis Cell, the amount of crude oil imported increased to 19.57 million tonnes. The amount of fuel consumed in India increased by 23.8% in May compared to the same month a year prior, continuing a rebound from a relatively low base in 2021, when the nation was afflicted by a second wave of COVID-19.

In comparison to a year before, imports of oil products increased by 15.8% to 3.23 million tonnes, while exports decreased by around 1%. Diesel made up 3.06 million tonnes of the 5.68 million tonnes of exports in May.

What is the demand in the Indian context?
India’s gas and oil consumption increased quickly over the first week of June. Long lines also started to form at certain gas stations as fears about the supply shortages increased.

What should traders and investors do with oil?
Amid currency fluctuations, traders and investors are advised to remain cautious while trading in crude oil futures. On the one side there is a production cut in crude oil by Saudi Arabia, US crude oil stockpiles have increased on the other.

According to the EIA, crude stocks increased by 4.5 million barrels in the week ending May 26. The crude stockpiles at the Cushing, Oklahoma, delivery hub increased by 1.6 million barrels last week, EIA said. While refinery utilisation rates increased by 1.4 percentage points over the course of the week, refinery crude runs increased by 96,000 bpd.

We are recommending to buy on dips in crude oil for mid to long term as demand is expected to increase for upcoming winter and stormy season ahead.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)