Oil prices to move higher to $70

Price Movements in Crude Oil
Oil prices Brent & WTI (CMP: $67.56&64.5/bbl) as on 5th May 2021have been trading in a broad rangeof $10 ($60-$70 for Brent and $57-$67 for WTI) in the time period 8th February to 5th May 2021. On the MCX futures, oil prices have been trading in the range Rs.4200-5000/bbl mark in the same time frame.
Weak dollar, prospects of increasing demand from US, China and Europe, falling oil inventories in the US, increase in refinery utilisation rate in the US, rise in China’s oil imports, vaccination drive across US and China are the current push factors at play for the black gold. Ease of lockdowns in US and Europe had a fair share of optimism for oil markets to cheer in recent weeks. On the contrary, prices are stable despite the lingering demand concerns amid resurgent waves of COVID-19, in India, the third largest consumer of Crude oil in the world.
Oil demand to rise in 2021
Spate of optimism have been surrounding oil prices as a third of US residents have been vaccinated. The United States has administered 245.6 million doses of COVID-19 vaccines in the country as of Sunday 2nd May 2021, according to the U.S. Centers for Disease Control and Prevention (CDC).
China has administered 275.34 million doses of COVID-19 vaccines in the country as of Sunday, according to the National Health Commission. That compares with 270.41 million doses given as of Saturday, up around 4.93 million doses.
Increasing vaccination drives in US and Europe and China is a dominant factor in ramping oil demand and oil demand is expected to grow by 5.5 million barrels per day to 6.5 mbpd in 2021 according to Reuter’s recent survey. This was in line with a cautiously optimistic picture drawn by the International Energy Agency earlier in April that producers may then need to pump 2 million bpd more to meet the expected demand.
Supplies of oil seem to be increasing
The 13-member Organization of the Petroleum Exporting Countries pumped 25.17 million barrels per day (bpd) in April, according to the Reuter’s survey, which was up 100,000 bpd from March. Output has risen every month since June 2020 with the exception of February. Moreover, Iran’s exports are rising as talks take place to revive a 2015 nuclear deal which could eventually allow more oil to the market.
OPEC, Russia and their allies will stick to plans for a phased easing of oil production restrictions from May to July amid upbeat forecasts for a recovery in global demand and despite surging coronavirus cases in India, Brazil and Japan. At the April 1 meeting, the group agreed to bring 2.1 million bpd back to the market from May to July, easing cuts to 5.8 million bpd.
Hedge funds increase their bets on oil
Money managers are increasing their bets on oil for most of the first quarter as can be seen in the graph alongside. The net longs as on 27th April 2021 stood at 3,87,394contracts when compared to 3,75,346 contracts as on 6th April 2021. This clearly reflects the optimism of global fund managers in a commodity which is regarded as a benchmark of global economy.
What next for the black gold?
In an era of second wave of COVID-19 infections in India, re-opening of US and European economies after strict lockdowns, rising vaccination drives globally, optimism of global hedge fund managers find solace for oil prices optimism to be on the brighter side.
A note of caution though as increasing oil supply from Iran, and the opec nations are an hindrance for the optimism of potential upside in oil prices.
However, We expect WTI oil prices (CMP: $64/bbl) in the international markets to head higher towards $70/bbl from a month perspective while MCX oil futures (CMP: Rs.4788/bbl might move lower towards Rs.5100/bbl mark in the same time frame.


Prathamesh Mallya, AVP Research Non Agri Commodities and Currencies, Angel Broking Ltd.