Informist Poll

Crude oil seen down in May as recession fears spook market

Informist, Friday, May 5, 2023

By Afra Abubacker and Arunima Bharadwaj

MUMBAI/NEW DELHI - Crude oil prices are seen retreating this month from the highs touched in April due to concerns over demand amid fears of recession in the US and a patchy economic recovery in China.

Last month, an unexpected production cut by the Organization of the Petroleum Exporting Countries and its allies boosted prices, with WTI crude surging to a five-month high of $83.53 per bbl on Apr 12.

On NYMEX, Prices Are Seen At $68-$82 Per Bbl This Month And On MCX At 5,800-6,600 Rupees Per Barrel

However, the momentum lost steam due to concern over turmoil in the US banking sector and rising interest rates, that are expected to raise borrowing costs of consumers and weigh on demand.

On the Multi Commodity Exchange of India, crude oil futures are seen at 5,800-6,600 rupees per barrel this month, according to the median of estimates of nine brokerage firms polled by Informist. On the New York Mercantile Exchange, prices are seen at $68-$82 per bbl.

Currently, the most-active June crude oil contract on NYMEX is at $69.55 per bbl and the May crude oil contract on the MCX is at 5,687 rupees. On Thursday, prices had plunged to a six-week low after the US Federal Reserve raised its benchmark interest rate by 25 basis points.

Further, China's manufacturing activity showed the first contraction since December as it unexpectedly fell to 49.2 in April, against the estimated 51.4 and 51.9 in the previous month.

Analysts expect downside bias in crude prices amid the rate hike-induced economic pain and debt ceiling issues in the US, along with broad risk-off sentiment and weak macroeconomic cues from China.

Crude oil prices are seen in lower range and the short-term trend remains moderately bearish, Saumil Gandhi, senior analyst at HDFC Securities, said in a note.

Although Russian exports rose above 4 mln barrels per day in April dulling the impact of OPEC output cuts, the recent escalation in tensions between Russia and Ukraine brought back supply concerns. Moscow had earlier this year decided to cut production of oil and restrict supply to countries that have imposed sanctions on it. But, recent data showed supply from Russia has only increased as it continues to export higher volumes to support its beleaguered economy.

Further, a likely disruption in supply in Iran and tight US crude stockpiles are likely to limit the fall in crude prices. The Energy Information Administration reported that crude inventory in the US fell for a third week by 1.3 mln barrels in the week ended Apr 28. The fall in prices is also likely to be cushioned by discounted buying as prices are ruling at multi-month lows.

Though summer demand in the US is likely to offer support, weak refining margins globally indicate that demand for oil products is subdued. The market is finding its way amid mixed cues. However, they are weighing more on the bearish side, said Shweta Shah, energy analyst at Motilal Oswal Financial Services.

Following is a summary of the poll by Informist on crude prices in May and details of the estimates by respondents, in alphabetical order:

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