The oil market is going through a rough patch as investors continue to grapple with inflation, demand fears and lockdown in China. US CPI which came higher than expected started cascading effect of selling pressure in all commodities including crude. While crude prices have taken a big hit, oil and gas stocks have fared even worse with energy equities experiencing nearly double the selling pressure compared to WTI crude. However recently the selling pressure has abated and WTI is steady at around $85. The market had taken in stride the outlook by IEA for almost zero growth in oil demand in the fourth quarter due to a weaker demand outlook for China however OPEC has forecasted 3.1 million bpd growth for the rest of the year. Sentiment also suffered from comments by the U.S. Department of Energy that it was unlikely to seek to refill the Strategic Petroleum Reserve until after fiscal 2023.
Bulls have something to cheer about as Nigeria’s Oil exports plunge to a record low. Nigeria’s oil exports have plunged below 1 million barrels per day for the first time since 1990 when Nigeria started recording data. Another reason for bulls to cheer is that with record Natural gas prices, Europe may shift to crude for generating electricity instead of Natural Gas which will boost demand for crude oil. If G7 puts a cap on Russian oil, then there will be a supply problem. Western countries won’t provide oil tankers and Russian oil will have to sail on non-Western tankers so there aren’t enough vessels to handle Russia’s millions of barrels which will result in less oil and higher prices. The global oil market will have to prepare itself for a loss of 2.4 million bpd supply when the EU embargo kicks in, the International Energy Agency (IEA) said. All this point that we won’t be seeing cheap oil in the near future or sustainable prices below $80 for a long time. In short term, prices are expected to remain in the range of 6500-7500.
In MCX, the price is taking resistance at a 20-day moving average since 30th August. It has failed to close or trade higher above the 20-day moving average so the immediate resistance is 7071. Above that, the next resistance is at 7470 where the 200-day moving average and swing high are. On the downside, 6650 and 6500 are the support which was a recent swing low. We don’t anticipate any major trend in crude owing to the news which is both positive and negative and thus counterbalancing the price at the centre. Any major or clear direction is expected after 21st September when the US Fed will give guidance about future rate hikes. Till then, the expected prices to trade in a broader range of 6500-7500.
(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.)