The FOMC meeting outcome was on expected lines as it increased interest rates by 25bps. The biggest takeaway was a signal of pause, going ahead. What does this mean for commodities, especially crude oil?
A 25 bps hike and a dovish commentary by the US Federal Reserve in its March policy appears to be indicating a shift in its stance toward inflation management and we expect interest rate range to be peaking out this year. The focus now is towards managing the banking system – which witnessed a series of back-to-back crises – rather than managing inflation by continuing with the interest rate hikes. Unemployment issue has now become a new threat for the US economy.
A pause or rate cut will be positive for commodities especially gold and silver which are considered as a hedge against inflation. A weaker dollar will reduce import bills for countries.
Where do you see crude benchmarks Brent and US WTI heading?
Crude prices are in a downtrend and we believe that the US WTI could test $60-$65 levels. As for Brent, the price could come down to $68 over a month. Low demand for crude oil and growing supplies is putting pressure on the crude oil prices. Weak US employment data is also negative for crude oil prices.
What is your assessment on the demand and supply situation?
The supply situation is more pronounced currently and demand still has to do a lot of catching-up. Global demand is set to surge by 3.2 million BBl per day from Q1 2023 to Q4 2023, taking average growth for the year to 2 million BBl per day. Matching that demand growth could be a challenge even if Russia were to maintain production at the pre-war levels.
Looking ahead, the IEA has raised its supply growth estimate for the year by 300,000 BBl per day to 66.9 million BBl per day. US, Brazil, Norway, Canada and Guyana are likely to take a lead in bridging the demand-supply gap.
Global oil supply jumped 830,000 BBl per day in February as supplies from the US and Canada rebounded strongly from winter storms and other outages, IEA said. For the year, the IEA expects world oil production to grow 1.6 million BBl per day with the US and Brazil dominating this uptick.Russian oil has found its markets. Do you think that is one of the reasons why crude oil is not able to hold itself?
To get market share Russia is offering crude oil at significantly discounted levels. Also, it has to cap the prices of crude oil because of the ongoing sanctions.
Do you think the cheap Russian crude will remain a preferred choice in Asia despite a plunging Brent?
Asian economies are the major driver of crude oil demand. Russia is also offering big discounts to Asian countries, particularly to India. It is expected to remain a preferred choice.
While Indian oil demand is up nearly 8% YoY, there was still a 6% MoM drop in February. Do you think this is a seasonal phenomenon or a result of slowdown?
This is a seasonal phenomenon. The demand will increase after June and July as festival time will begin in India. So the demand for crude oil will increase again.
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