Oil near two-month high mark on Hurricane Beryl forecast, low US crude inventories; Brent at $86

Crude oil prices traded higher on Wednesday, July 3, hovering near the two-month high level after a larger-than-expected decline in US crude stocks supported the rise in prices. This came after forecasts for Category 4 Hurricane Beryl on the Gulf of Mexico resulted in supply concerns near the US oil fields.

Brent crude futures last edged up five cents to $86.29 per barrel. US West Texas Intermediate (WTI) crude futures last gained one cent to $82.81. Coming to domestic prices, crude oil futures last traded 0.14 per cent higher at ₹6,961 per barrel on the multi commodity exchange (MCX).

Also Read: Oil pares gains from 2-month high mark after Hurrican Beryl forecast spares crude production areas; Brent at $86

What's driving crude oil prices?

-The US Energy Information Administration (EIA) reported a 12.2 million draw in the country's crude oil barrels in storage last week. Oil market analysts said that strong exports, a slight drop in imports, and a rebound in refinery runs colluded to draw crude inventories by a significant 12 million barrels. 

-However, the market's reaction was muted partly due to lower trading volumes ahead of Independence Day, as per analysts. Both benchmarks hit their highest since April in the previous session after the US National Hurricane Center said Hurricane Beryl was expected to weaken into a tropical storm by the time it entered the Gulf of Mexico. Hurricanes can disrupt oil production and tighten supply.

-The Organisation of Petroleum Exporting Countries (OPEC) output rose for a second consecutive month in June, which also weighed on crude oil prices. The higher supply from Nigeria and Iran has offset the impact of voluntary supply cuts by other members and the wider OPEC alliance, according to Reuters.

-Analysts said that OPEC was reported to have increased production in June despite pledges to keep quotas in check through the third quarter, and the lingering concerns over a tepid recovery in China sent a bearish signal. 

-Surveys that showed that China's services activity expanded at the slowest pace in eight months and confidence hit a four-year low in June, which limited the gains. Overall business growth across the euro zone also slowed sharply last month. China is the largest importer of crude barrels, and a slowdown in the country's economic activity can impact the overall oil demand.

Also Read: Expert View | Crude oil seen at $70-$90 in 2024: Kotak's Kaynat Chainwala

Where are prices headed?

WTI crude oil futures pared early gains and closed slightly lower on Tuesday, as Hurricane Beryl, tearing through the Caribbean Sea, is expected to have weakened into a tropical storm by the time it enters the Gulf of Mexico late this week. Today, WTI crude trades near two month highs buoyed by hopes of a drawdown in US crude stockpiles as API reported a 9.2 million barrels draw, according to Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.

According to the latest survey, Hurricane Beryl is not expected to shut down a major amount of offshore oil production in the US, with only minimal shutdowns anticipated, according to market analysts.

‘’Crude oil prices slipped due to the record weakness of the Japanese yen and demand concerns from Japan and China. However, better-than-expected US JOLTS job openings data provided support for prices at lower levels. We expect prices to remain volatile. Crude oil has support at $82.10-81.50 and resistance at $83.10-83.70. In INR, crude oil has support at ₹6,870-6,810 and resistance at ₹7,040-7,110,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.