International crude oil prices are likely to rise the near to medium term, primarily due to supply concerns, according to a report by brokerage firm Emkay Global Financial Services.

Brent crude prices rebounded as much as 3.4% to $86 a barrel on Tuesday.

“The fuel prices are at a very critical level. It may rise up in the near to medium term due to a slew of reasons. There are three basic factors that are likely to drive the prices of crude oil,” the report said.

According to the Emkay Global , the first factor is the likely onset of winter very soon and the expectations of a strong winter which would require higher consumption of fuel for heating devices.

“The holiday season in the West is going to be on in the next month and that is the time most people would take to the highways given the fact that the pandemic prevented mobility in the last two years,” it said.

The report further said that the second factor is the zero-covid policy of China. There were reports of China easing this policy and it led to some price uptick in the global markets. But China was quick to deny the easing of the restrictions around the policy. Any development on this front will lead to a higher demand for crude thereby boosting prices.

Leading brokerage firm said that the third factor that may affect crude prices in a big way is the likely capping of Russian oil prices. Once the embargo takes effect, the supply of Russian oil may be curtailed by almost 50%. Therefore, it is highly likely that the supply from Russia may be around 2.50 million barrels per day as against the regular supply of 5 million barrels per day. This may have some price effect.

“The OPEC’s ability to enhance the output of oil is limited and the shortfall in OPEC supply has been to the tune of 3.50 to 4 million barrels per day,” it said.

The report added that the release of oil to the commercial sector from the US government’s strategic petroleum reserves helped calm down prices for about eight weeks or so. Any further release may not be there to meet the shortfall in supply as the SPRs are at all-time lows.

“If the US decides to replenish the stocks, then that may also have a price impact. But the prices are looking up mainly due to supply factors that are working now. From the current $85-90/bbl, prices, oil may target higher levels. Much would depend on the Russian supply dynamics and the OPEC’s response to it,” Emkay report stated.
Source: Livemint