Crude oil price: there are no changes to the fundamentals – Amrita Sen

Crude oil price has erased the gains made earlier in the week to trade at a one-week low. As at the time of writing, Brent futures were at $110.00 after bouncing off its intraday low of $108.80. At the same time, WTI futures is down by 4.66% at $104.47. On the one hand, traders are of the opinion that the heightened inflationary pressures and recession worries may be triggering demand destruction. Nonetheless, Energy Aspects’ Amrita Sen argues that those worries are premature.

What’s driving the market?

Late last week, crude oil price plunged by about 7% as the markets digested the Fed’s approval of a super-sized interest rate hike of 75 basis points. The hike, which is the largest in 28 years, heightened traders’ concerns that the US economy is headed for a recession.

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Since late February, after Russia invaded Ukraine, the psychological level of $100 has offered steady support to Brent futures- the benchmark for global oil. Indeed, in early March, crude oil price hit its highest level since at $138.04.

With the soaring prices, experts such as Goldman Sachs and Energy Aspects insisted that demand destruction was the only viable solution to the surge in prices. Heightened inflation and recession worries appear to be triggering demand destruction. In fact, crude oil price has erased the gains made earlier in the week to trade at a one-month low in Wednesday’s session.

Even so, Energy Aspects founder and Director of Research, Amrita Sen insists that the demand worries are premature. During an interview on Bloomberg Markets earlier in the week, the analyst noted that there are still large demand growth numbers from various parts of the world including Asia and Europe.

She further noted, “some of this is just jitters and sentiment weakening at a time when liquidity is strained with the US holiday but we still don’t see any changes in underlying fundamentals”.

In the ensuing sessions, the focus will be on the bulls’ ability to defend the psychologically crucial level of $100. With the easing of COVID-19 restrictions in China, coupled with the ongoing supply tightness, I expect $100 to remain a steady support zone in the short term. Subsequently, the range between 104.52 and $116.40 will be worth looking out for.