By Bhavik Patel
Poor run of crude oil continues as it gets battered by negative news. Crude has been one of the worst performing asset classes among all other major asset classes, namely equities, commodities and bonds. Only cryptocurrencies have after crude performed poorly due to FTX bankruptcy. A major factor for crude decline was rise in Covid cases in China, as the country reportedly asked the Saudis to ship less crude in December. China coming back was very much part and parcel of the recent upswing in prices, which is why we saw prices rise from 6800 to 7400, but once again drifted lower after China enforced more lockdown due to rise in cases.
Currently, market is oversupplied because of increased exports of Russian oil before the European Union embargo and OPEC+ production cut of 2 million bpd goes into effect next month. The only hope for bulls was price cap to be announced by EU and there are rumours that EU is putting price cap around $65-$70. The planned price cap of $65-$70 per barrel for Russia’s oil is not expected to immediately shrink Putin’s oil revenues, considering that this is more or less the price that buyers currently pay for Russian crude. Some Indian refiners have been paying a discount of $25-$35 for Russia’s Urals compared to Brent, which as it stands is currently lower than the proposed price cap of $65-$70, since Brent trades at around $85 per barrel these days. So this will not put dent in supply as Russia will continue to supply with these price cap.
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In MCX, crude Dec contract is at support area of 6200 and if we look historically, whenever momentum oscillator RSI_14 comes around 34-32, prices have bounced. Currently RSI_14 is at 36, so bounce from current price cannot be ruled out. We had previously also mentioned that trend is negative but short position from current juncture is not viable looking at risk/reward ratio. However long position could be ruled out also as on daily chart, there is no sign of reversal. So we would recommend to wait for any signs of reversal which could come when price goes above 6750. Right now the best strategy would be to wait and watch for crude either to form bottom or show any signs of reversal. Any short sell position should be covered as price is near to its support area.
(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.)