Brokerage house Emkay Wealth Management, the advisory arm of Emkay Global Financial Services, expects Brent crude to trade in a range-bound pattern in the near term with a likelihood of some decline.

Currently, it is trading at around $80 per barrel.

Over the past month, global crude oil prices have been trading in a narrow range. In a recent note on Brent crude, the brokerage highlighted its price outlook and the reason for the rally in crude oil prices.

The note mentioned conflicting factors impacting oil prices. One is the potential for short-term demand destruction and the other is anticipated long-term growth in demand from India and China.

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“Upon closer examination, it appears that the immediate and short-term dynamics may be influenced by demand destruction, whereas the sustained, long-term growth in demand is expected to stem from the economic engines of India and China," Emkay said in a note.

It further added that the argument for demand destruction primarily stems from the widespread occurrence of high inflation globally, driven by fuel prices.

Emkay suggests that elevated prices act as a self-correcting mechanism. Observations, including a notable decline in US fuel consumption during the recent holiday season, support this perspective. "This notable reduction is believed to be a consequence of consumers exercising restraint in response to the elevated prices," it added.

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Quoting an International Energy Agency (IEA) report, Emkay said that the data is indicating a significant drop in US gasoline consumption to levels not seen in two decades.

Emkay noted that a decline in fuel prices from current levels could have a positive impact on global inflation, particularly benefiting import-dependent economies such as India, China, and parts of Europe. This, in turn, could lead to a more accommodative or soft monetary policy in the upcoming quarters.

Crude oil prices have witnessed a roller coaster journey this year. After reaching a peak at $130.5 per barrel in March 2022, oil prices plummeted by over 40% due to robust Russian flows, a slowdown in Western countries, and a lackluster economic recovery in China.

In May 2023, oil prices hit a 17-month low of $63.64 per barrel due to concerns of contagion from the failure of a US regional bank, coupled with troubles at Silicon Valley Bank and Credit Suisse Group AG, triggering a massive sell-off in crude oil futures.

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However, prices started increasing in late June, driven by OPEC+ output cuts tightening the physical oil markets. Then in October, it rose further following a Hamas attack on Israel, threatening Middle East tensions. Nevertheless, prices declined in Q4 2023 due to the absence of supply disruptions from the war, increased non-OPEC supply, deteriorating demand prospects, and a seasonal lull in demand.

Meanwhile, brokerage house Kotak Securities also predicted that anticipated slowdowns in supply growth in the upcoming year may prompt OPEC+ to make efforts to maintain the $80 per barrel floor. However, the decisive factors influencing prices will be how the demand scenarios unfold in the United States and China, cautioned the brokerage.

 

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.