WTI crude oil futures, that slipped below $39 per barrel on Thursday evening, may see further erosion, warn analysts. The resurgence of Covid-19 cases in Europe and other parts of the world is raising doubts of a sustained recovery in demand for oil.

Data from the US Energy Information Administration (EIA) released on Wednesday showed crude oil inventories having reduced by two million barrels to 492.4 million barrels. This news failed to cheer the market, as oil output increased to 10.575 million barrels per day (four-week average as September 25) from 10.325 million barrels in the previous week. Thus, a build-up in stocks again in the next few weeks can’t be ruled out. Also, at 492.4 million barrels, oil inventory is still above the pre-Covid levels of last year at 422.6 million barrels.

Examining the inventory data, it is quite clear that withdrawal in crude oil stocks is slowing — with driving season ending and winter approaching, demand may only slow further in the weeks to come, say analysts.

Further, the EIA data on gasoline inventories is also bearish — for the week ended September 25, gasoline stocks were at 228.2 million barrels, up 0.7 million barrels from the previous week.

Analysts add that increasing supplies from Libya to the OPEC+ countries and higher production in Russia, too, will be weighing on sentiments in the near term on crude oil futures.


Price support

The only factor in support of crude prices now is a military conflict between Azerbaijan (a key OPEC+ member producing about 0.5 million barrels of crude oil a day) and Armenia.

On Tuesday, MCX Crude (October) futures corrected sharply to ₹2,877 per barrel. However, over two days, the contract inched higher and was trading at ₹2,955 per barrel as of 12.33 hours on Thursday.

Ravindra Rao, V-P and Head, Commodity Research at Kotak Securities, said: “The crude price is being supported by optimism about US economic data and efforts to reach a consensus on fiscal stimulus package”.

Traders are, however, advised caution on their open positions and analysts suggest trading with strict stop loss. At 19.36 hours on Thursday, the October month futures contract of Crude futures was trading at ₹2,813 per barrel.