Top crude oil producers agreed to boost production by around a million barrels a day from July With the key meeting of OPEC now behind, petroleum investors are looking out for the next trend in crude oil prices.
While crude oil prices jumped after the outcome of the much-awaited meeting of major petroleum producers last week, analysts say global oil markets would remain tight this year.
The OPEC or Organization of the Petroleum Exporting Countries, in a meeting that concluded on June 22, agreed for modest hikes in oil production.
The move was aimed at compensation for production loss at a time of rising global consumption.
On Friday, Brent crude oil futures - the global benchmark for crude oil and petroleum products - jumped more than 2 per cent.
However, this week started with a dip in crude oil prices to around $74.25 per barrel, as traders factored in an expected 1 million barrels per day (bpd) output increase.
But the question is: where are petroleum prices - and domestic petrol and diesel rates - headedTop crude oil producers agreed to boost production by around a million barrels a day from July.
That came after Saudi Arabia persuaded Iran to cooperate in efforts to reduce the crude price and avoid a supply shortage.
The real increase, however, will be around 770,000 bpd, according to Iraq, because several countries that recently suffered production declines will struggle to reach full quotas, while other producers may not be able to fill the gap, news agency Reuters reported.OPEC's decision confused some in the market as the producers gave opaque targets for the increase, making it difficult to understand precisely how much more they will pump.Here's what experts expect from the petroleum market going forward:Credit ratings agency CARE Ratings expects Brent crude oil price to be in the range of $70-$75/bbl in the coming months.
"With OPEC pumping in additional supply after 18 months of adherence and US increasing its supply, price of oil will be less pressured.
Also it should be remembered that the increase in oil supply announced would still be lower than the cut decided on earlier," it said in a note.
On the other side, with global crude oil demand rising and uncertainty in global political scenario, oil price can rise despite increase in supply, it added."Uncertainty may keep crude oil prices volatile in the short run but if we consider sliding demand outlook in 2019 from latest EIA reports and the milder boost in oil production from OPEC non-OPEC nations may keep oil prices under pressure in the long term," said Abhishek Bhansal, founder and chairman of ABans Group of Companies.On Friday, Brent crude rose $1.80, or 2.5 per cent, to $74.85 a barrel.
For about three weeks ahead of the meeting, watched closely by oil investors, prices had retreated from three-and-a-half year highs around $80 a barrel.
That surge in crude oil price was backed by fears that larger increases in output could lead to oversupply in the petroleum market."OPEC didn't announce a figure for increasing production after the much-awaited meeting.
However, supply increases are likely to be limited to a range between 6,00,000 to 8,00,000 bpd (barrels per day) as against the expectations of an increase up to one million bpd.
This was the reason why we saw a strong bounce back in crude prices on Friday.
However, the rise in crude prices seems to be temporary and we may soon see bears dominating the trend again," said Gaurav Katariya, research head-commodities at Arihant Capital Markets.Brent crude oil prices - from 2014 highs to current levelsBrent traded above $100 a barrel for several years until 2014, dropping to almost $26 in 2016 and then recovering to over $80 last month.
The most recent price rally followed an OPEC decision to restrict supply in an effort to drain global inventories.
The group started withholding supply in 2017 and this year, amid strong demand, the market tightened significantly, triggering calls by consumers for higher supply."Brent Crude may be trading volatile in its current range of $72 per barrel-$81 per barrel for short-term, the upside will be capped near $86.30 per barrel and downside till $68 per barrel will receive a support base As supply keeps increasing in near future, an aggressive break below $68 per barrel will confirm its negative trend towards $65 per barrel and $61 per barrel in the medium-term," said Mr Bansal, who does not see any major upside move above $86.30 per barrel."The short term rally is likely to dry up As per technical charts, the primary bearish trend in crude oil is likely to remain intact for next one year at least amid short-term relief rallies," said Mr Kataria, who expects Brent crude oil prices to correct by another 12-15 per cent till $64 per barrel.Impact of global crude oil/petroleum prices on domestic petrol, diesel prices:"We may see any significant decline in petrol and diesel prices only after 3-6 months but not immediately as international prices are still trading near recent highs," said Mr Bansal.The OPEC decision is expected to lead to some relief for domestic oil consumer as crude oil price "will be lower than the highs of $78-$80", according to CARE Ratings.
This will also ease the import bill for India, which imports 80-85 per cent of its oil consumption requirements.Domestic petrol prices have been lowered in the range of Rs 2.61-2.86 per litre in Delhi, Mumbai, Kolkata and Chennai so far this month.
Diesel prices have been reduced by Rs 1.77-2.07 per litre during this period, data from Indian Oil shows.
Towards the end of May, the prices had touched all-time highs in some cities.
In Delhi, for example, petrol prices had touched a record Rs 78.43 per litre on May 29.
On that day, diesel price was at Rs 69.31 per litre, after a series of hikes in prices, thanks to a surge in global crude oil prices and weakness in the rupee-dollar exchange rate."From May 30, the OMCs are cutting petrol prices despite Brent crude hovering near $73 per barrel but prices rose on Friday by 4 per cent.
This is a reason to worry about and any further cuts don't look feasible at this time.
Domestic consumers have to wait for more for a relief," Mr Bansal added.The rupee weakened by 29 paise to 68.13 against the US dollar on Monday.
Last month, the rupee had fallen to as much as 68.42 against the greenback, an 18-month low."If crude trades in line with our expectations then it will definitely have a positive impact on Indian consumers.
Prices of petrol and diesel may correct by Rs 4 to Rs 7 if other factors like Dollar- Rupee parity remain unchanged," Mr Kataria said, speaking on domestic petrol and diesel prices.Another development that may trigger the beginning of a new era in fuel pricing in India is the growing demand to bring petrol and diesel under GST, he added.(With agency inputs)