By Bhavik Patel
Bulls have gained momentum and crude is scaling all its resistance effortlessly. US retail gasoline prices reached their highest levels since November while WTI is trading at 11 weeks high. The move on the higher side is backed by fundamental especially lower US inventory. The EIA estimated that gasoline inventories fell again in the previous week by another 800,000 barrels, and are 7% below the five-year average for this time of year, with gasoline production dipping to 9.5 million barrels per day. It is the lowest seasonal inventory level since 2015.
Interestingly this whole week, crude has not been thrown off by the strong US dollar. Usually, whenever prices are stretched and there is a rally in USD, crude prices have retraced but this week, prices have held on to their gains and also scaled new highs. The oil markets are worried about a big tightening this half of the year because demand signals are still robust, production in OPEC+ countries is still artificially constrained, and U.S. production is struggling to get traction.
Demand is expected to be robust as on Tuesday, the IMF raised its 2023 global growth estimates based on promising economic activity in Q1. For 2023, the IMF is now estimating a 3% GDP growth—up 0.2 percentage points from its forecast published in April. Its 2024 remains unchanged at 3.0%. China’s GDP growth, alongside new economic measures, might stimulate the country’s recovery and potentially push up global oil prices.
On the supply side, Russia’s crude oil exports by sea continued to slump last week. Russia’s crude shipments plunged by 311,000 bpd to 2.73 million bpd in the week to July 23. Russia has started to reduce supply to the market, which, combined with the Saudi production cut of 1 million bpd in July and August, would tighten market balances.
Prices on MCX have closed above the 200-day moving average for the first time since Nov 2022. RSI_14 is now near the overbought zone as RSI_14 is around 69. We believe we will look for any reversal signal as prices are far from the 20-day moving average and there is the probability of correcting from the current juncture. At the moment, there aren’t any signs of reversal so we would not recommend taking any short positions but any bearish candle with volume would certainly suggest profit booking and temporary price retracement. 6400 is the level which is the support and any price action below 6400 would give us the confidence to go short with a stop loss of 6550 and an expected target on the downside around 6250. One can also take the PE option once crude breaches 6400 on the downside. Till then one can wait and avoid taking any fresh long or short positions and wait for the reversal sign.
(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.)