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View: Crude oil may see choppy trade in $67-70.50 a barrel range

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Crude oil may witness choppy trade in a range of $67-70.50 per barrel going forward as we need to get more clarity about demand-supply impact of the storm activity, according to Ravindra Rao of Kotak Securities.

View: Crude oil may see choppy trade in $67-70.50 a barrel range
Crude oil recently hit a one-month high on supply concerns as storm activity led to a shutdown of production in the Gulf of Mexico region. NYMEX crude witnessed volatile trade but logged a weekly gain of 0.8 percent on Friday, and tested the highest level since early August.
According to data from the US Bureau of Safety and Environmental Enforcement (BSEE), about 92.51 percent or 1.683 million barrels per day of Gulf of Mexico production remained shut as of September 4.
Reflecting the impact of storm activity, the number of rigs drilling for crude oil declined by 16 last week -- the biggest fall since May 2020.
Crude oil prices rose as market players reacted positively to the decision by the Organization of the Petroleum Exporting Countries (OPEC) to raise output gradually. In its meeting on September 1, the OPEC’s review committee agreed to continue with a production hike of about 4,00,000 barrels per day in October. It will meet again in October to decide on future policy.
The group has raised its forecast for global demand this year but expressed concerns about rising Covid-19 cases.
Crude oil also rose in reaction to a mixed inventory report from the US. The Energy Information Administration (EIA) noted a much bigger-than-expected decline in US crude oil stocks, and weekly crude production jumped to May 2020 highs.
The EIA also reported a bigger-than-expected decline in distillate stocks but also an unexpected rise in gasoline stocks.
However, weighing on crude oil prices were demand concerns amid rising coronavirus cases, a slowdown in the manufacturing activity globally and the China economy, and a disappointing US jobs report.
Also weighing on price were concerns on easing supply from Mexico as Pemex restarted production, which was shut due to a fire that broke last month. Also hurting the price were refinery closures in the US due to power outages and flooding caused by storm activity.
Crude oil may witness choppy trade in a range of $67-70.50 per barrel going forward as we need to get more clarity about demand-supply impact of the storm activity. We however expect to see buying interest at lower levels amid tightness in the US market.
-- Ravindra Rao, CMT, EPAT, is VP-Head Commodity Research at Kotak Securities. The views expressed in the article are his own. 
Note To Readers

NYMEX crude tested the highest level since early August. Crude oil jumped to 1 month high on supply concerns as storm activity led to production shutdown in the Gulf of Mexico region. However, weighing on crude oil prices were demand concerns amid rising virus cases, slowdown in manufacturing activity globally, slowdown in Chinese economy and disappointing US jobs report.