By Bhavik Patel
On the last day of the week, Crude oil saw some buying momentum as expectations of an OPEC+ production cut grew. On September 5, OPEC+ meeting is scheduled and looking at low oil prices and their estimate that the oil market would remain surplus this year, news is flowing that OPEC+ might cut production. Oil bulls didn’t catch a break this week as Iraq’s unrest failed to build momentum on the upside because Iraq’s minister stated that oil export from Iraq will continue without any issue and are willing to sell to any buyer. Moreover, the lockdown in Chengdu, a city of 21 million people, has again sparked demand destruction from China. All lockdowns in China this year have caused oil prices to fall thanks to the well-documented effect of lockdowns on oil demand.
In addition, Reuters released a poll suggesting supply was on the rise, with OPEC expected to have pumped an average of 29.6 million bpd last month, the highest since April 2020. US Crude is also on the rise as it is now above April 2020.
One of the factors that will help put some pressure on crude prices would be White House’s reluctance to export US crude to Europe and South America. White House has asked US refiners to stop exporting crude to Europe as US Strategic reserve inventory is at a 35 year low. We might see some volatility when the G7 finance minister discusses cap on Russian oil. The idea being discussed is the refusal to insure Russian oil shipments unless the oil is being sold below a certain price threshold. Russia is unwilling to accept a price cap.
OPEC+ expects surplus oil this year as despite sanctions on Russian oil, it continues to flow. According to data from the Institute of International Finance (IIF), Russian oil shipments hit their highest ever August level this month, with Greek-owned tankers playing the biggest role in helping Russia’s oil get to international markets.
In MCX, the trend is negative as the price is under the 200-day moving average. Previous swing low was 6838 on 16th August and that would be the support for crude oil right now. Resistance is at 7382 which is 20 and 200-day moving average. Any trigger on the upside would only come if OPEC+ cuts production otherwise expect price to remain under pressure on basis of fundamentals and technical. WTI Crude has support around $85 where previously it bounced from that level. On the upside, $98 seems to be strong resistance. We might see some short covering before the OPEC+ event but traders should be cautious in holding long positions as crude is not out of the woods. One can go long only above Rs 7382 per bbl level with expected target of Rs 7500 and stoploss of Rs 7100 in MCX Crude September futures. On the downside, one can tentatively take a long position around lows of 16th August which is Rs 6838.
(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.)