Crude oil futures dip as investors book profit, OPEC points to slow Q2 growth

Crude oil futures traded lower on Monday morning as some investors booked profits after an increase in the last session on Friday. There were also concerns of a decline in demand for crude oil from China, which is a major consumer, as this Covid-affected nation reported disappointing economic indicators.

This is in spite of a likely ban by the European Union on the import of Russian crude oil due to its war with Ukraine. At 10.04 am on Monday, July Brent oil futures were at $109.72, down by 1.64 per cent; and June crude oil futures on WTI were at $106.81, down by 1.68 per cent.

May crude oil futures were trading at ₹8,447 on Multi Commodity Exchange (MCX) in the initial hour of Monday morning against the previous close of ₹8,511, down by 0.75 per cent, and June futures were trading at ₹8,320 against the previous close of ₹8,388, down by 0.81 per cent.

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Market reports noted that the European Union is hopeful of a phased ban of Russian crude oil imports, in spite of concerns over its impact in parts of Europe. Russia is one of the major producers of crude oil in the global market.

Geopolitics impact

Meanwhile, the recent ‘OPEC Monthly Oil Market Report’ for May said oil demand growth in the second quarter of 2022 is projected to be slower at 2.8 million barrels a day when compared with 5.2 million barrels per day in the first quarter of 2022. It is said that demand in 2022 is expected to be impacted by ongoing geopolitical developments in Eastern Europe, as well as Covid pandemic restrictions.

Saish Sandeep Sawant Dessai, Research Associate, Base Metals, Angel One Ltd, said crude extended its gaining momentum as it jumped over 4 per cent on Friday, eventually ending the week on a positive note, clocking gains over 7 per cent.

The rise in crude came as US gasoline prices hit a new high, Kyiv halted the main transit route for Russian gas flows to Europe, disrupting exports via Ukraine for the first time since the invasion, and China appeared to be ready to ease the pandemic restrictions amid investors worry over a supply tightening if the European Union bans Russian oil.

He said oil prices have been volatile, boosted by fears of a potential EU embargo on Russian oil, which may constrain supplies, but pressed by fears of a resurgent Covid, which might reduce world demand. If fully implemented, an EU ban on Russian oil could shut down nearly 3 million barrels per day, disrupting and shifting global trade flows.

However, the US dollar surged to a near 20-year high against a basket of currencies this week, making oil more expensive for other currency holders, he said.

In his outlook for the day, he said crude prices are expected to remain elevated given the recent escalation between Russia and Ukraine and anticipation of the EU’s Russian oil embargo to be completed soon, raising fears of a supply disruption. May natural gas futures were trading at ₹606.20 on MCX in the initial hour of Monday morning against the previous close of ₹592.60, up by 2.29 per cent.

Base metals under pressure

Saish Sandeep Sawant Dessai said the base metals pack ended the week on a mixed note, with aluminium being the only metal to gain 1.2 per cent for the week.

Copper prices rose on Friday after falling to 7-month lows as a slowing global economy will have little to no demand for metals. However, the prices were still on track for their sixth week of losses due to rising fears of a worldwide economic slowdown dampening demand.

In the short term, however, metals may stay under pressure, owing to Covid limitations in top customer China, which have slowed metal demand and disrupted supply networks.

He said another hindrance for base metals was a stronger dollar, which traded around two-decade highs, lowering demand for dollar-backed commodities. For other currency holders, a stronger dollar raises the cost of acquiring these goods.

In his outlook for the day, he said, “We expect copper to trade lower towards ₹737 levels, a break of which could prompt the price to move lower to ₹718 levels.”

Jeera crackles

On the National Commodities and Derivatives Exchange (NCDEX), May jeera futures were trading at ₹22,085 in the initial hour of Monday morning against the previous close of ₹21,805, up by 1.28 per cent. May guarseed contracts were trading at ₹6,020 on NCDEX in the initial hour of Monday morning against the previous close of ₹6,090, down by 1.15 per cent.

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