By Bhavik Patel
Crude oil which was trading in oversold region before this week jumped at two global events. First was relaxation in covid policy from China and second was oil leak from Keystone pipeline which was sending crude from Canada to US. Beijing’s abrupt end to zero Covid policies that shuttered factories and cities and crushed economic growth in the world’s second-largest economy has produced at least one of the first signs of green shoots and that is airline travelling. Thousands of flights are returning to the skies as air travel demand rebounds ahead of Lunar New Year next month. Reopening China will certainly involve increased crude and refined imports in the coming months. China refinery throughout rose to the highest in 12 months in November, reaching 14.5 million barrels which again is the sign that demand is expected to increase in China. China is also taking advantage of cheap crude from Russia.
Another reason why we are bullish in crude is that in this week, despite US inventory coming higher than expected, price after briefly falling, recovered almost all the loss and closed at high. This clearly shows that buyers are in complete control and any dips are getting bought into. Report release by OPEC on Dec 13 shows that OPEC left its forecasts for oil supply growth from non-OPEC countries largely unchanged at 1.9 million barrels a day in 2022 and 1.5 million barrels a day in 2023, signalling that it expects little impact on Russian crude oil production from Western sanctions.
One should also look the correlation between crude oil and iron ore. Historically both are strongly correlated, however in past few weeks, there was disconnect with crude price declining while iron ore price rising. Now crude oil price have started rising and catching up with iron ore rally. So we expect the rally in crude to continue.
In MCX, the trend still is negative on daily scale as price are making lower top and lower bottom. Trend breakout comes above 6500 as previous peak was 6433. Price has also been unable to close above 20-day moving average. So price either above 6500 or closing above 20-day moving average is necessary for trend to change and shift from negative to neutral. Next resistance comes around 6700 where 50-day moving average is. Crude has bounced from oversold region so we might see some pullback after recent rally. Since 1 November, price have not closed above 20-day moving average so it is necessary if one wants to go long, should wait for price to close above 6500. Above 6500, one can go long with expected target on the upside around 6750-6800 and stoploss of 6400 closing basis.
(Bhavik Patel, Currency and Commodity Analyst, Tradebull Securities. Views are author’s own.)