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MCX crude oil Oct futures: Wait for crude to cross Rs 7,150/bbl; check key levels to watchout for next week

In this same week, before the FOMC meeting, crude got a boost after Russian President Vladimir Putin ordered a partial mobilization of troops that could signal an escalation of the war. This will be the first mobilization called since World War II.

MCX crude oil Oct futures: Wait for crude to cross Rs 7,150/bbl; check key levels to watchout for next week
Crude is hanging in the balance with negative and positive news on both sides.

By Bhavik Patel

US Fed’s commitment to keeping inflation under control was reiterated by the Fed chairman on the 21st Sept and the market was surprised by the bullish tone. Fed had predicted an interest rate of 4.4% by 2022 and 4.6% by 2023 which was more than what the market had anticipated. The market was looking at 4-4.25% by end of 2022 and this spooked the market with investors flocking to safe-haven US dollars. Oil prices in return slid as US Dollar got stronger. Oil prices were already trending down prior to the meeting. The rate hike sank them further. In this same week, before the FOMC meeting, crude got a boost after Russian President Vladimir Putin ordered a partial mobilization of troops that could signal an escalation of the war. This will be the first mobilization called since World War II.

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Crude is hanging in the balance with negative and positive news on both sides. The interest rate hike is making the USD stronger and aggressive rate hikes will push the biggest economy into recession. US and China are the biggest consumers of oil and so prices are facing resistance. Until now it was the Chinese covid lockdown which was keeping prices checked but now recession fears are helping bears to control the price. On the other side, the positive news is that OPEC+ is already under-producing and the expected surplus this year will not be significant. Also, there is an increase in demand from China after the ease of lockdown. Chinese oil demand is on the mend, with several refiners planning to ramp up processing rates considerably. Europe is an obvious source of this higher demand after an embargo on Russian crude oil kicks into effect in December and an embargo on fuel imports follows in February. In anticipation of the higher demand, refiners in China expect the government to issue another fuel export quota batch for up to 15 million tons. With Natural gas prices at a record high, there are chances of crude replacing natural gas for electricity which will create additional demand. 

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Crude is trying to make base around 6500 in MCX Oct Fut.  Below $80, OPEC and Non-OPEC won’t let the price remain for a long time and would start cutting production. So it would be unwise to short at the current position but there isn’t any technical set-up which calls for taking a long position. Since 30th August, crude is unable to cross the 20-day moving average displaying inherent weakness. We would recommend waiting for crude to cross the level of 7150 which is a recent swing high for taking a fresh long position with an expected price till 7400 and stop loss of 6600. As long as crude is in a range of 6500-6900, one can take directional trade for intraday traders but positional traders should avoid and take only once it breaches above 7150 in the Oct contract.

(Bhavik Patel is a commodity and currency analyst at Tradebulls Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)

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