Oil snaps weekly streak, settles 1% lower on ceasefire talks in Middle East; WTI up 2%, Brent at $86/bbl

Global crude oil prices snapped their weekly winning streak and settled lower in the previous session as the rising possibility of a ceasefire deal in the Middle East (Gaza) outweighed the strong summer fuel demand and the potential supply disruptions arising from the ongoing Gulf of Mexico hurricanes.

Brent crude futures settled down 89 cents, or 1.02 per cent lower, to $86.54 a barrel, after reaching their highest since April earlier in the session. US West Texas Intermediate (WTI) crude futures settled at $83.16 a barrel, down 72 cents, or 0.9 per cent. For the week, Brent rose 0.4 per cent, while WTI futures posted a 2.1 per cent rise.

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WTI did not settle on Thursday due to the Independence Day holiday, giving way to thin trading, but prices have risen this week on strong summer oil demand expectations in the US. Coming to domestic prices, crude oil futures settled 0.84 per cent lower at ₹6,965 per barrel on the multi-commodity exchange (MCX).

What's weighing on crude oil prices?

-The head of Israel's Mossad has returned from Doha after an initial meeting with mediators trying to reach a Gaza ceasefire and hostage release deal, and negotiations will resume next week, said Prime Minister Benjamin Netanyahu. Netanyahu's office said in a statement that gaps remain between the sides.

-An easing of the Middle Eastern conflict reduces the risk premium of barrels out of the region and weighs on oil prices. Analysts said that the last couple of days represent the peak of the drive season, in terms of demand and prices. This is coming from stronger consumer demand and the effects of Hurricane Beryl.

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-The US Energy Information Administration (EIA), on Wednesday, reported a much larger-than-expected 12.2 million barrel inventories draw last week, compared with analyst expectations for a draw of 700,000 barrels.

-On the supply side, Hurricane Beryl, a Category 2 storm, made landfall in Mexico, after killing least 11 people in the Caribbean, tearing through buildings and power lines across several Caribbean islands. Mexico's major oil platforms are not expected to be affected by the storm, but oil projects in US waters to the north may be disrupted if the hurricane continues on its expected path.

-Meanwhile, the possibility that US interest rate cuts are approaching soon has raised expectations for an increase in the global oil demand. Lower interest rates can boost economic activity and increase crude oil demand.

-US job growth slowed marginally in June, but a rise in the unemployment rate to more than a 2-1/2 year high of 4.1 per cent and moderation in wage gains pointed to an easing of labor market conditions, and could put a rate cut at the July meeting in their sights.

Where are oil prices headed?
 

Kaynat Chainwala, AVP-Commodity Research, Kotak Securities:

WTI crude oil futures edged lower but trades near two-month highs around $84 per barrel as concerns of a more severe storm season grew following the early arrival of Hurricane Beryl, which threatens approximately 73,000 barrels per day of federal offshore oil production. 

The largest inventory drawdown in over a year in crude oil, coupled with declines in gasoline and distillate stocks last week, indicated tightening supplies. Overall, oil appears poised for further gains amid escalating geopolitical tensions as the Lebanese Hezbollah group launched over 200 rockets on Thursday at several military bases in Israel in retaliation for an attack that killed one of its senior commanders.

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Rahul Kalantri, VP Commodities, Mehta Equities Ltd:

Crude oil extended its gains in a volatile session, trading at two-month highs amid hopes for rate cuts and significant draws in US oil stocks. Prices also surged due to escalating geopolitical tensions in the Middle East. However, downbeat US economic data and demand concerns from China are limiting gains. 

US manufacturing and industrial activities were slower than expected last month, and Chinese services activities expanded at their slowest pace in eight months, with consumer confidence hitting four-year lows in June.

 These factors could restrict crude oil gains. We expect crude oil prices to remain volatile. Crude oil has support at $82.60-$81.90 and resistance at $83.90-$84.50. In INR, crude oil has support at ₹6,950- ₹6,880 and resistance at ₹7,110- ₹7,180.”

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, and not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.