MCX crude oil October futures shows continuation of bearish trend, go long only above Rs 7050/bbl | The Financial Express

MCX crude oil October futures shows continuation of bearish trend, go long only above Rs 7050/bbl

For the past three to four months, the oil market has been struggling to gain traction on the upside due to growing fears of imminent recessions in Europe and possibly in the United States.

MCX crude oil October futures shows continuation of bearish trend, go long only above Rs 7050/bbl
Oil prices may struggle in the short term, but once economies rebound, the world will find itself short of supply of oil

By Bhavik Patel

For the past three to four months, the oil market has been struggling to gain traction on the upside due to growing fears of imminent recessions in Europe and possibly in the United States. Since June, when the Fed started aggressively hiking key funds rates, oil prices have lost around $40 per barrel, slumping below $86 a barrel from $130 last year.  Not just recession fears but demands for destruction have also soured sentiment for bulls.  The zero Covid policy in China with snap lockdowns and mass mobility restrictions, coupled with concerns about the slowing growth in the Chinese economy, have also weighed on market sentiment. Oil prices have also been volatile as liquidity has dried up. 

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There was discord between reality and paper oil futures as demand still was holding up but speculators were pushing prices down in anticipation of a recession. OPEC+ had also said that prices are not reflecting the true picture. In fact, with supply constraints increasing due to the implantation of Russian sanctions in winter, there will be a shortage of crude as other OPEC countries don’t have enough capacity to increase production. Demand is still holding up as more demand will come for oil by switching from natural gas, whose sky-high prices have become prohibitive for many industries and power-generating units in Europe. Supply will struggle to catch up with demand once China’s economy rebounds, and possibly up to 2 million BPD of Russian crude oil and products have to find new homes outside the EU and the G7 this winter.

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So we conclude that oil prices have less space to fall but surely the floor is not set. Below $80, OPEC+ will come into action and start cutting production to prop up prices but slowing economies and interest rate hikes are set to keep investors and traders off risk assets like crude oil, meaning oil prices may not exceed $100 per barrel again this year. Oil prices may struggle in the short term, but once economies rebound, the world will find itself short of supply of oil and other commodities. So in the medium to long term, we are bullish but in the near term, prices are still set to trade in a range. In MCX, Oct future contract still is in a bearish trend with lower top and lower bottom formation on the daily scale. Trend line resistance comes at 7050 so break out or change in trend is only possible above 7050 closing basis. Last week we had recommended not to initiate a long position until 7100 is breached and we are again reiterating the advice to go long only above 7050. Till then the trend is bearish and will remain vulnerable to selling pressure at every bounce.

(Bhavik Patel is a commodity and currency analyst at Tradebulls Securities. Views expressed are the author’s own.)

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