By Bhavik Patel
WTI crude has been stuck in the range of $87-$92 in the past one week. Sentiment has turned bearish despite disruption of oil passing from Ukraine through Europe. Although the disruption has been resolved but market is focusing on the upcoming recession and demand destruction which is why we have seen the crude market struggling. OPEC+ saw its combined crude oil production at 38.70 million bpd last month. Despite raising its crude oil production in July by 500,000 barrels per day, the OPEC+ group was still well below its collective quota, pumping 2.75 million bpd below targeted output.
Anticipating weak demand, OPEC+ decided to increase production by just 1,00,000 bpd this month, far less than their previous decision to increase production to pre-pandemic levels. Although we have seen demand returning back to pre-pandemic levels but OPEC+ is dragging their feet to increase production partly on account of less spare capacity and to keep oil prices higher. On 10th August, we saw WTI crude oil jumping sharply from lows of $88 till $92 on increased US inventory. U.S. distillate inventories have fallen to dangerously low levels and either imminent recession reduces consumption or prices are likely to surge higher. So that is why crude oil jumped despite US inventory coming higher.
In MCX, crude oil has slowly and steadily climbed back to 7200 after making a low of 6944. Past 5 trading sessions, crude oil has closed positive despite WTI trading negative on the back of weak rupee. Prices on daily scale are under the 200-day moving average which suggest bearish sentiment. 7500 is the resistance and the trigger where a shift in sentiment may change after prices close above that level. Momentum oscillator RSI_14 has bounced from 33 to 40. If we look at the last 3 months, RSI_14 has bounced from 30 to 50 thrice so this time RSI_14 is at 40 so there is a chance till 50 before we may see resumption of selling.
Next week we find resistance around Rs 7500 and support at Rs 6850. Risk/reward ratio does not support fresh short from the current juncture and aggressive traders can go long via call option with stoploss of 6800 in future.
(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.)