By Bhavik Patel
Economic impact of rising interest rates is keeping prices of crude under check. Strike in France, drop in US inventory and some pullback in US dollar have stopped the prices from sliding but near term impact of crude prices will be on the direction of US dollar. 14th March US inflation number will be very crucial for crude oil prices as higher than expected inflation number will prompt US Fed to hike rates by 50 bps. As things stand, more rate hikes mean less chance of a soft landing and therefore lower crude demand.
At the start of the year, crude oil gained on back of rising demand from China after it dropped its zero covid policy but China’s GDP forecast of 5% (lowest economic growth in decades) has again pegged demand from world’s second biggest market. China’s crude oil imports in the first two months of 2023 fell 1.3% year on year, but the silver lining is accelerating imports in February which is seen as a sign that fuel demand was rebounding after Beijing scrapped COVID-19 controls. China’s crude oil imports could recover over the next quarter as industrial activity picks up and refiners rebuild their stocks.
We are neutral in crude at the moment as higher demand from China is not anticipated immediately while a surge in US dollar in anticipation of rate hike will certainly put pressure on crude prices. So any pullback or jump in prices will likely remain short lived.
Since Jan 2023, crude has taken multiple support around 6000 levels and we expect prices to re-test those levels. On the upside, the hurdle comes around 6580 which is a recent swing high. At the moment, price is under both the 20- and the 50-day moving average suggesting a negative trend with momentum oscillator also confirming the trend as RSI_14 is at 41. Any area near 6000 might attract short covering and would be an opportunity to go long short-term with stoploss of 5900 and expected push till 6250. We would also recommend not to rush in going long and wait for US inflation data to be released before taking any positional call.
(Bhavik Patel, Currency and Commodity Analyst, Tradebull Securities. Views expressed are author’s own. Please consult your financial advisor before investing.)