Crude oil prices are expected to decrease further as the economy slows. Crude oil prices climbed Wednesday on fears that Iran's predicted retaliation assault against Israel might start an escalation of Middle Eastern hostilities. WTI closed up 2.3% on the day at $75.23/b, although it is down 3.5% in August and 4.5% in July.

Oil prices have fallen 8% over the previous five weeks due to fears about an economic slowdown. As of today over the week, crude prices contributed to their gains. Wednesday, the weekly EIA crude inventories decreased more than predicted to a 6-month low.  On Wednesday, the dollar strengthened, limiting advances in oil costs. Iran has promised to strike against Israel over last week's death of a Hamas commander in Tehran.  Israel's military continues to undertake operations in Gaza, and there is a chance that the conflict may expand to Hezbollah in Lebanon or possibly to a direct confrontation with Iran.

Global Macro Remains Sluggish

Global Economic News Wednesday was weaker than predicted, with adverse implications for energy consumption and crude prices. China's July exports increased by 7.0% year on year, falling short of estimates of 9.5% year on year and indicating a negative outlook for global economy.  In June, German exports plummeted 3.4 percent m/m, falling short of predictions of -1.5 percent m/m and marking the worst drop in six months.

The most recent trade statistics from China was quite gloomy. In July, Chinese crude oil imports averaged 10.01 million barrels per day, down 3.1% year on year and 11.8 percent month on month. This brings total imports for the first seven months of the year down 2.4% YoY. Weaker Chinese oil demand was a major cause of the drop in oil prices during July.

Positive EIA Report

The EIA report was mixed on crude and products.  On the positive side, EIA crude inventories plummeted -3.73 million barrels to a 6-month low, exceeding predictions of a -1.8 million barrel drop. In the United States, gasoline demand has once again dipped below $9 million barrels per day, signaling a pessimistic trend.

The global crude oil market returned to a deficit of 0.4 mbpd in H1-2024, with a deficit of 0.8 mbpd expected in H2-2024 and a shortfall of 0.58 mbpd for the whole year. The EIA estimates world oil demand at 103.35mbpd and global oil supply at 102.85mbpd in June 2024, with a total of approximately 2.81mbpd of supplies offline in July vs 2.61mbpd in June.

The EIA predicts that global production of petroleum and other liquid fuels will increase by 570,000 b/d in 2024, with a 1.3 million b/d decline from OPEC+ countries and a more than 1.8 million b/d increase from non-OPEC+ countries, led by growth in the United States, Canada, Guyana, and Brazil. Global liquid fuel output will rise by 2.1 million barrels per day in 2025, as the OPEC+ voluntary production limits are phased out over the course of the year. OPEC+ production rises by 700,000 barrels per day, while non-OPEC+ nations add 1.4 million barrels per day.

On the demand side, the EIA forecasts that global liquid fuel consumption will increase by 1.1 million b/d in 2024 and 1.6 million b/d in 2025, a decrease from the earlier prediction of 1.8 million b/d. The biggest cause for this decline is China, where the EIA expects slower economic development to continue to cut diesel consumption.

Outlook

The economic slowdown is clearly visible in crude oil's recent performance, as it has dropped by more than 9% in five weeks, while geopolitical concerns have kept it bouncing back, but overall sentiment in oil remains bearish, and we expect prices to fall further towards the support levels of $70 and $68.WTI Crude Oil.

WTI Crude oil Sep :Support: $72, Resistance : $77

MCX Crude Aug:  Support : Rs 6,100 ; Resistance : Rs6,550.