By Bhavik Patel
After four weeks of weekly decline, we have seen crude oil prices recovering. In MCX, 6000 seems to be temporary base and it seems we may see levels till 6500-6600 before fresh selling pressure comes.
Until last week, demand concerns from China was keeping prices under pressure. Since last Friday, the weak US jobs data and Yen carry trade unwinding led to steep fall in Crude oil prices. Fuel demand in China has been weakening on the back of lower construction activity and the consequent slowdown in diesel demand.
On the bullish side, fears of an escalation in the Middle East continue to run high in anticipation of Iran’s retaliatory strike against Israel after the latter killed the leader of Hamas in Tehran.
An essential component of the world’s oil output, the Middle East, has been more volatile recently. Fears of possible supply interruptions have increased in response to recent events, which have included both political unrest and military aggression.
Because traders and investors recognize the region’s critical position in the energy landscape, they are responding appropriately by driving up prices in an effort to reduce risk.
Concerns about supply are also coming from big suppliers outside of the Middle East, including as Venezuela and Libya. The limited supply scenario is made worse by the internal issues that these nations are dealing with. The combination of these geopolitical events has produced an ideal storm for oil prices, driving them higher.
Few traders contend that the current upswing is only a market correction after an excessive sell-off, while others highlight fundamental issues. They emphasize that strong demand growth is anticipated in the upcoming months, driven by the economy’s recovery and the relaxation of pandemic restrictions. The price increase is gaining more speed as a result of this optimistic attitude.
We expect the current rally to continue till 6500 and 6600 in MCX where fresh concerns of demand outlook will keep prices under lid. The recent recovery is on back of short covering and waiting for Iran’s retaliation.
The war premium has not yet been built into the prices. Technically 6250-6200 is good level to go long with stoploss of 6000 and expected upside target of 6500 in MCX.
(About The Author: Bhavik Patel is a Senior Commodity/Currency Research Analyst at TradeBulls Securities.)
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