IGI Logo

Emkay Wealth Management, the wealth management and advisory arm of Emkay Global Financial Services has released a note on Brent crude, price outlook, and the reason for the rally in the crude oil prices. The note suggests the sudden decision of OPEC+ to cut the oil output led to a rise in crude prices. Crude oil prices rallied to scale a 2-month high post the outcome of the OPEC+ meet.

A surprise cut by OPEC+ pushed oil prices up

Earlier this month, OPEC+ which is a group of oil-producing and exporting countries announced a sudden cut in their output by 1.16 million barrels per day. This led to Brent crude prices rising from $75/bbl level to $87/bbl at one point in time. Crude prices have been trading range-bound for the past few sessions.

Strong economic data in China to provide a cue for oil prices

Strong economic data in China will provide further cues to the oil prices. A strong data set pushes oil prices on the higher side, likely helping it scale the $90/bbl level. However, the dip in the oil prices last month to the tune of 10% has been occasioned by concerns regarding the soundness of the US as well as the European banking system. If banking issues become persistent,  then they can steal a lot of demand away from the economies which are already been under the weight of inflation for more than a year now.

The range of oil prices moves higher

Oil prices are trading on a steady note as all the major economies are buffered against any major financial market developments, and also any cyclical fluctuations. Russia announced an output cut of 500,000 barrels per day, which will be valid till June this year. All this, in effect, means that at least for the time being, there will not be any further cuts in production. The range for Brent has now shifted downwards from the $80-85 to $88-90/bbl levels till the time there is more clarity on the global economic conditions, and till the fog of uncertainties in the banking system vanishes completely. While the IEA has forecasted a stronger global demand for oil this year, they have also warned that the recent supply cut by OPEC could hurt demand due to the elevated prices, especially amid deteriorating economic conditions.

DXY to guide crude prices

Much would depend on the movement of the Dollar Index, as to whether the Index may attempt to test 106 levels again or whether it may test the support levels at around 101.90 once again. The probability of the Index being in a range between 102 to 106 is quite likely given the Fed’s determination to contain inflation remains unchallenged. The global demand conditions do not offer much room for oil prices to retreat from the current range. It may not be surprising if it moves up into the orbit set earlier at $85 to $90/bbl.

Above views are of the author and not of the website kindly read disclaimer