By Rhod Mackenzie
The situation on the oil market on Tuesday, July 4, was quite dramatic. The cost of "black gold" jumped by 2% amid reports of additional production cuts by Saudi Arabia and Russia in August, as well as weak prospects for the global economy.
Saudi Arabia, the world's largest oil exporter, said it would extend a voluntary 1 million bpd output cut until August, while Russia and Algeria voluntarily cut August output and exports by 500,000 and 20,000 bpd, respectively. .
By the morning of July 5, oil has lost part of the increase, but experts are sure that this is not the end of the rally. Brent fell 0.6% to $75.79 a barrel after rising $1.60 on Tuesday. US West Texas Intermediate (WTI) futures traded at $70.86 a barrel, up $1.07 or 1.5% from Monday's close.
"Oil prices are under pressure once again as concerns persist about a global slowdown and further interest rate hikes in the US and Europe," Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting, told Reuters. “The market is likely to continue to fluctuate for some time, focusing on economic performance in China and central bank monetary policy,” he said, noting that Brent would trade around $75 a barrel.
A private-sector survey Wednesday showed that activity in China's services sector grew at its slowest pace in five months in June, as weakening demand weighed on the momentum of the country's economic recovery from the pandemic. The market is also awaiting the minutes of the June 13-14 meeting of the Federal Open Market Committee (FOMC), which will take place today.
Environment is not for growth
Oil prices have grown by more than 4% since June 28, but there is no momentum to update the levels of early June (above $78/bbl), confirms Ekaterina Krylova, managing expert of the PSB Center for Analytics and Expertise.
On the one hand, she says, there is support from OPEC +, expressed, however, in a voluntary reduction in production, but the market is now in surplus in terms of demand.
On the other hand, this is clearly not enough. The same China does not live up to expectations as an active consumer of raw materials: the recovery of the economy after the lifting of coronavirus restrictions was noticeably more sluggish than expected. The surge in Chinese oil demand earlier in the year was largely a catch-up effect after last year's fall.
Also, an important factor in pressure on the oil market is the fear of rising key rates in Western countries.
“In this regard, we still continue to assess the state of the oil market as not easy and do not have strong market factors of support necessary for confident consolidation above $75 per barrel,” Krylova notes.
Without leaving the hallway
“This week, the oil market is evaluating new inputs, according to which the supply of oil from the OPEC + countries in August may be 1.5 million bpd lower than earlier forecasts. There is no doubt about the reduction of 1 million b / d from Saudi Arabia, but the decrease in Russian exports by 500 thousand can be included in quotes only after receiving confirming data, since the discussion about how much the country has reduced production after the March statements is still ongoing. ”, — says Igor Galaktionov, an expert on the stock market at BCS World of Investments.
In parallel, he confirms, there were data on economic activity in China and the United States, which turned out to be weaker than expected. This increases the risks on the demand side, which may partially offset the shortfall in supplies.
“Brent futures are still within the previous trading range, showing increased volatility. Probably, the corridor of 71-78 dollars per barrel will be relevant in the first half of the month,” says Galaktionov.
In the center of the sidebar
In general, Sergey Chevrychkin, a financial analyst at the Finmir marketplace, points out that the trading of a wide flat trend of $71.4–78.68 per barrel has been going on since May of this year. Last week, oil again bounced off the $71.4-71.9 support zone, which is preventing prices from dropping lower for the fourth time since the beginning of May. As of 10:00 Moscow time, the price is $75.81.
The average Urals price in June was $55.28 (-36.6% yoy) against $53.34 (-32.3% yoy) in May, the expert notes. The average Urals price in the first half of the year was $52.17 (-38% yoy). If converted at the average price of the US dollar of 76.89 rubles, it turns out 4,011 rubles. for a barrel of oil. The deviation from the planned cost in the Russian budget for 2023 is $17.84, or 25.5% (the target is $70.1).
However, Chevrychkin believes, it is worth paying attention to the dynamics of the decrease in the discount of the price of Brent oil to the Russian Urals by 4%: in June it amounted to about $20 (26%), and in May - $22 (30%).
Another important point is that, acting in tandem with Saudi Arabia, Russia in August 2023 will voluntarily reduce oil exports by 500 thousand barrels per day (the Saudis - by 1 million), the analyst believes. This news can affect the development of further events in terms of supporting the cost of oil, and possibly a rebound in quotations against the backdrop of reduced supply. However, judging by the price chart, there are not many people who want to win back such news, he states.
In general, while the technical analysis of the price chart indicates a neutral situation on the oil market, indicates Chevrychkin. The RSI indicator on all time intervals signals that the instrument is not oversold or overbought. The quotes of the asset are in the very center of the flat. In such a situation, many traders will increase activity only when the price tests its limits.
Opinions of market participants will be divided, the analyst believes. Someone will open positions for a breakdown and further directional movement, and someone for a rebound and return of quotes to the range.
“Tomorrow, at 18:00 Moscow time, statistics on crude oil reserves will be released, which, we hope, will add momentum to the moderate rhythm of summer trading,” Sergey Chevrychkin concludes.
This article originally appeared in Russian at expert.ru