By Bhavik Patel
Crude oil is stuck in range of 5800-6200 for last 15 trading session. In this narrow range, we are witnessing daily volatility on back of headlines like sporadic attack in Red Sea by Houthis. Yesterday’s crude oil gain can be attributed to an estimated US inventory decline of 2.5 million barrels for the week to January 12.
This compared with a moderate inventory build of 1.3 million barrels for the previous week, which also saw another round of massive increases in fuel inventories that drove prices lower at the time. This week also one of the factors for price rise was OPEC report which was bullish. OPEC released its first monthly report for the year in which the cartel forecast robust demand growth for the year, at 2.25 million bpd, which is the same level of demand growth it had forecast earlier.
However we should take this report with the pinch of salt as OPEC report is usually biased as it represents oil producing nations and they want price high so they will publish report which will prop the prices up. In comparison, International Energy Agency (IEA) have contradicted OPEC’s bullish assessment and have predicted mediocre growth in demand for the first quarter.
The International Energy Agency (IEA) has largely dismissed the risk of supply disruption in the Middle East citing robust supply elsewhere and expectations of weaker demand. In fact, if the Red Sea conflict was not happening, we would have seen crude far below the current market price.
Another factor which is giving support to price is the supply situation in the U.S. Production has come down as it has been affected by a cold snap that has cost North Dakota 650,000 bpd to 700,000 bpd in temporarily halted production. A fresh round of attacks by U.S. and UK forces against Yemeni military targets on Wednesday also lent some support for prices, albeit a modest one.
Any fresh upside momentum is only expected above its range of 6200. Momentum oscillator RSI_14 is at 53 showing expansion in trend and we believe any dip around 6000 is buying opportunity for expected target of 6200 with stoploss of 5850. Any long position should be exited below 5800 as we can see next downside target of 5600, once 5800 is breached. On the upside, breach of 6200 could see levels till 6500-6600. Currently, crude is expected to trade in range of 5800-6200.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)