Brent crude fell over 4% in a week amid economic worries; could trade in $98 and $112 range

Central banks around the world are raising interest rates to tame inflation, spurring fears that rising borrowing costs could stifle growth, while mass Covid-19 testing in Shanghai this week caused worries about potential lockdowns that could also hit oil demand.

Brent posted a weekly decline of about 4.1 per cent and WTI a loss of 3.4 per cent, following the first monthly decline since November. Prices tumbled on Tuesday when Brent's $10.73 drop was the contract's third-biggest daily fall since 1988 when it started trading.

The US oil benchmark has been down so far this week, tracking a broader decline in commodity markets, as restrictive monetary policy among major economies threatened an economic downturn.

Two of the Federal Reserve's most hawkish policymakers, Christopher Waller and James Bullard, backed raising interest rates by another 75 basis points this month to curb red-hot inflation while also playing down concerns of a slump.

Meanwhile, oil prices are still up about 35 per cent this year as global economic recovery coincided with disrupted Russian supply due to the war in Ukraine.

In the latest developments, a key export route for Kazakh oil risks being suspended as it appeals a Russian court order for it to temporarily shut down.

Crude oil prices also slipped after the labour strike ended in Norway. Crude oil and natural gas prices also slipped as the euro hit a 20-year low against the US dollar.

Natural gas prices surged more than 17 per cent in the EU and UK due to supply shortages from Russia. Record energy prices in the EU and UK could send their economies into recession.
US non-farm payroll data showed that the economy added more jobs than expected in June, a sign of persistent labour market strength that gives the Federal Reserve ammunition to deliver another 75-basis-point rate hike this month.

US energy firms this week added two oil rigs, bringing the total to 597, the highest since March 2020.

Economic worries may have roiled oil prices this week, but the market is still flashing bullish signals. This is because supply tightness is more likely to intensify from this point than to ease.
Western bans on Russian oil exports have supported prices and sparked a re-routing of flows while the Organization of the Petroleum Exporting Countries (OPEC) and allied producers struggle to deliver on pledged production increases.

We may see the same kind of high volatility in the coming week. The weekly time frame suggests a period of consolidation may be ahead; the range could form between $98.00 and $112.00.

Overall, we suggest that selling on jump strategies will be beneficial for trade. In the domestic market, crude has very good support at Rs 7970.00, sustaining below this can show Rs 7760, while upsides Rs 8390 and Rs 8550 are acting as a resistance. This week the rupee will play an important role to decide crude movement.

(The author is VP commodities, Mehta Equities Ltd)

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