Oil extends losses as easing supply concerns offset Middle East risk premium; Brent at $82/bbl

International crude oil prices steadied on Tuesday, May 7, as supply concerns and signs of weakening demand countered fears of an escalation in the Middle East. Traders largely looked beyond escalating tensions in the Middle East, where the Israeli military seized control of the Rafah border crossing between the Gaza Strip and Egypt and its tanks were pushed into the southern Gaza city of Rafah, while mediators they were fighting to get a ceasefire agreement.

Read also: Brent and WTI down 6% as oil heads for steepest weekly decline in 3 months: What’s cooling the commodity?

Brent crude futures were down 36 cents, or 0.4 percent, at $82.97 a barrel, while U.S. West Texas Intermediate (WTI) crude futures were down 28 cents, or 0. 4%, at $78.20 per barrel. Front-month Brent futures against the six-month contract fell to $2.81 a barrel, the lowest level since mid-February, signaling easing concerns about tight supplies, according to Reuters news agency.

Brent and WTI posted their biggest weekly losses in three months last week as weak US jobs data fueled hopes for an interest rate cut by the US Federal Reserve. Domestically, crude oil futures last traded 0.84% ​​higher at ₹6,597 per barrel on the multicommodity exchange (MCX).

What is driving the price of crude oil?

– Current inventory data shows that crude and oil supplies are running 1.1 million barrels per day above forecasts in countries that are part of the Organization for Economic Co-operation and Development, according to an analysis by energy brokerage StoneX.

-Analysts said crude oil traders appear to have developed a greater tolerance for geopolitical risk in the Middle East and its potential to disrupt global oil supplies. Instead, their focus appears to be on uncertainties surrounding the outlook for global economic growth and the anticipated impact of sluggish growth on oil demand.

– A stronger US dollar also weighed on oil prices, making crude more expensive for traders holding other currencies. Oil prices found some support after the US Department of Energy announced requests for up to 3.3 million barrels of oil to replenish the country’s strategic oil reserve.

Read also: Brent may touch USD 95/bbl near term, Q2FY25 price target up USD 5/bbl on geopolitical risk premium: ICICI Bank

-The US Energy Information Administration will release its short-term monthly energy forecast on Tuesday. Weekly stock update will be on Wednesday. U.S. crude and product inventories were expected to fall last week. Crude stockpiles could have fallen by about 1.2 million barrels in the week to May 3, based on Reuters analysts’ forecasts.

Where are prices headed?

WTI crude futures snapped a six-day losing streak and edged up nearly 1 percent on Monday as cease-fire talks between Israel and Hamas appeared to have stalled, with Israel continuing strikes on the southern city of Rafah Gases. Even though Hamas agreed to a ceasefire proposal on Monday, Israel said the terms fell short of its requirements, according to analysts.

New impetus came from Saudi Arabia, which raised OSP for crude oil sold to Asia, northwest Europe and the Mediterranean in June amid a strong demand outlook this summer. Still, oil prices are nearing five-month lows as investors weigh a possible Middle East solution,” said Kaynat Chainwala, Senior Manager – Commodity Research, Kotak Securities.

Analysts also noted that Israeli Prime Minister Netanyahu’s remarks on the deal, facilitated by Egypt and Qatar, fell short of Israel’s expectations, adding to the uncertainty. That uncertainty has supported oil prices as concerns persist about the outcome of the ceasefire negotiations. Further escalation of tensions in the Middle East could support crude oil prices. In addition, OPEC+ production cuts continue to support global oil prices.

“Crude oil support is anticipated around $77.70-$77.00 with resistance likely at $79.10-$79.90. In terms of INR, crude oil is expected to find support between ₹6,470-6,390, while resistance is projected at ₹6,610-6,700,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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