Brent Likely to be Range-Bound

Brent has been in a narrow range of US$ 76 to US$ 82 per barrel. This behaviour in prices stems from the lack of any fresh triggers for the prices to move either way. One of the potential triggers would have been the Middle East situation which seems to have subsided in its intensity, and it may not be of any consequence as things stand at present. But the reluctance of the price level to move up is the consequence of two primary factors. The first is the demand destruction that has happened mainly in the US and Europe resulting from the high prices. This has resulted in lower consumption. The sagging demand may continue to influence prices in the short term, that is, over the next three to six months. Beyond this time frame the demand factors may come to play, mainly from China and India. Many of the long-term forecasts lay emphasis on this demand growth.

The imports of crude oil by China moved up to 11.40 million barrels per day in Dec 23, and this jump is from the Nov 23 lows of 10.35 million barrels per day. The dip in Nov 23 is one of the lowest in a couple of years and the revival is considered a good sign for demand. Reports confirm the Jan 24 demand to be of the same order as in Dec 23. Those who are watching China have observed higher iron ore imports too in the last two months. However, this surge in imports could be the result of business optimism arising from the festival season that is coming up in China, which is staring from Feb 2024.

In our analytics, we focus on the trajectory of the US currency too. A decline in the US Dollar may push up oil prices. But the event requires a certain basis which is a rate cut in the US. This is still quite far as the retail inflation level is at 3.40 %, quite a distance from the long-term Fed target of 2 %. There is another interesting development around oil prices. The world seems to be self-sufficient in oil without the OPEC. The US production of oil has touched all time high, 13 mln barrels per day, bringing down the reliance on external sources. This condition may be further strengthened by an intense pace of energy conversion into the renewable and green space. Brent may remain range- bound in the immediate term.

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