By Bhavik Patel
Crude oil continues to trade at the higher end of the range thanks to lower than forecast US oil inventory and strong crude imports to China. Solid economic indicators, low unemployment, and lower inflation during the year since the Fed embarked on one of its most aggressive rate hike campaigns in history have boosted US oil consumption this year. Strong imports from China can be attributed to buying discount oil from Russia. China’s economic rebound since lifting COVID-19 restrictions has fallen short of expectations. Its oil imports increased by nearly half year on year in June, but at the same time stock levels rose to near an all-time high.
Prices had earlier taken a boost from the announcement by Saudi Arabia that it will extend its voluntary cut of 1 million bpd till December from earlier announcement till August. On the Russian side, there is also news of lower production. Russian crude oil shipments continue to decline, with seaborne exports falling to a six-month low in the four weeks ending July 16 according to a Bloomberg report. In an effort to maintain a balanced market, Russia announced in early July that it would reduce its crude oil exports by 500,000 bpd in August. It looks like Russia is finally walking the talk and we may see demand-supply equilibrium tilt to falling supply side by the end of the year.
It looks like the crude market is willing to ignore the Libyan oil production reopening and weak Chinese data. There has been wide speculation that Beijing may take several more measures to stimulate activity, but the steps so far have been tentative. If we look at the maximum open interest CE in the NYMEX Crude option, it comes at an $80 level while maximum open interest for PE comes at $70. So clearly the range has been set between $70 and $80.
Crude oil technical levels
In MCX, the 200-day moving average continues to remain a hurdle. Last week we also suggested booking some profits in Crude as it was around its 200-day moving average and has failed to close or sustain above it. This week, the same theme is playing out with resistance around Rs 6320. We believe the same recommendation like last week should be implemented with profit booking at the current market price and wait for corrections to play out near Rs 6000 where the 20-day moving average is. Although crude oil has strong support around 5500 but the major hurdle around $80 in Nymex and Rs 6320-6360 in MCX will keep bulls on the sidelines. New positions from bulls will only be taken either on the breakout above $80 or on correction near Rs 6000 in MCX.
(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.)