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Crude Under Heat As OPEC+ Shocks With A New Cut Which Might Shoot Prices Of Oil To USD 90-95 By 2023-End

Crude oil became a target following the announcement of the Organization of the Petroleum Exporting Countries (OPEC)) to execute surprise output cuts. The US West Texas Intermediate (WTI) climbed to USD 80.47, up by USD 6.34, whilst Brent crude reached USD 84.86, earning 6.15%. By 2023-end, the oil is anticipated to test USD 90-95 level.

The production cut is expected to support crude oil's cause during the medium to long term, and by December, Brent could test levels of USD 90-95, as per Vice President (VP), Commodity and Currency Research at IIFL Securities, Anuj Gupta. Brent has remained an underperformer and suffered a 7.24% loss on a year-to-date basis, along with almost 4.04% in March.

In the meantime, Goldman Sachs increased the price forecast of Brent crude to $95 per bbl for December 2023 and to $100 per bbl for December 2024 forecast after the statement. The global investment bank reduced its 2023-end production forecast for OPEC+ by 1.1 million bpd.

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Goldman evaluated that the reduction in output could give oil prices a boost of 7%, contributing to increased Saudi and OPEC+ oil revenues.

The action is viewed as the consortium of oil-producing countries shot at stabilising oil prices.

The announcement specified about OPEC+ making production cuts of around 1.16 million barrels each day. The latest move brings OPEC+ total volume cut to 3.66 million bpd which is the equivalent of 3.7% of the global demand.

OPEC+ was envisioned to uphold its prior decision to slash output by 2 million bpd till December at its monthly meeting.

The move is being viewed as unwise by the Biden administration.

A month ago, Brent declined to USD 70/barrel, its lowest in the past 15 months, on the back of a global banking crisis and growing interest rates which will cause demand to suffer in spite of inferior OPEC oil output in March as a result of oilfield maintenance in Angola as well as a deadlock in a few Iraq exports.

Trading Strategy

April Crude Oil futures on MCX traded at INR 6,570 per bbl, up by 5.98% or INR 371 in the early trade. Gupta's strategy for April oil futures is to purchase at INR 6,150 with a stop loss of INR 6,000 and a price target of INR 6,500.

Ethylene And Ethylene Oxide Price Outlook Led by the Production Cut

In North America, Asia- Pacific, and Europe, prices of Ethylene displayed mixed sentiments on the back of frail downstream polyethylene and glycol industry demand. Prices of feedstock Naphtha rose, which caused prices of Ethylene will rise as well. Furthermore, the supply chain was adversely affected by the shortage of labour and vessel bunching, restricting the availability of the material in the region.

In the China region, prices were affected by oversupply and frail demand. Also, the ongoing lockdown measures, along with growing COVID cases, caused uncertainties in production, operation, and logistics. In addition, downstream Polyethylene and Glycol value chain demand dropped amidst a higher rate of inflation.

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Similar to Ethylene, the pricing of Ethylene Oxide also displayed a mixed market sentiment. At first, costs were reduced as USA’s EPA recognised risks from Ethylene oxide using commercial sterilisation facilities adversely affecting the demand and consumption levels of the product in the downstream industries. Later, the trend shifted, and prices increased because of an increase in the cost of production amidst high demand for feedstock Ethylene from producers of Polyethylene.

In some Asian regions, prices for the commodity remained on the lower end while plants shut down and inflation rose; however, they soon recovered as the facilities restarted operations. Later prices rose due to currency depreciation caused by an economic slowdown. Also, prices increased later due to an increase in prices of upstream Naphtha and Dutch TTF natural gas.

According to the Procurement Resource article, prices of Ethylene and Ethylene Oxide will stay strong on the back of the latest crude output cut by OPEC+. The cut in production will help the oil's cause during the medium to long term. The action comes as the consortium of oil-producing countries shot at stabilising oil prices. Hence, the rise in feedstock prices affected the Ethylene and Ethylene Oxide Price Outlook as well, which displayed an overall mixed market sentiment recently.