Crude oil outlook weakens on US inventory build-up, rising COVID cases; gains 0.34% this week on MCX

Source: Reuters

Source: Reuters

Crude oil futures slipped to settle at Rs 3,838 per barrel on January 22 as participants increased their short positions as seen by the open interest. The prices fell on new restriction imposed by China to contain the spread of COVID-19 and surprise build-up in US crude stockpiles.

However, it ended the week with a gain of Rs 13 or 0.34 percent on the domestic bourse. Crude prices declined in three out of the five trading sessions on the MCX.

West Texas Intermediate (WTI) crude declined 2.15 percent to settle at $ 51.99 per barrel, while Brent crude, the London-based international benchmark, edged lower 1.80 percent to close at $ 55.09 per barrel. International oil remained range-bound this week with WTI ending marginally in the red, while Brent ending marginally in the green.

However, after the initial uptick, prices gave up most of its gains amid concerns that oil demand in the world’s top oil importer, China, could weaken amid rising COVID-19 cases and expanding lockdowns.

The US dollar dropped after Treasury Secretary nominee Janet Yellen told the Senate Finance Committee this week that the US should act big in the upcoming stimulus package.

The US Energy Information Administration (EIA) reported that US crude inventories rose 4.4 million barrels for the week to January 15. This compared with an inventory decline of 3.2 million barrels estimated by the EIA for the previous week.

The number of rigs drilling crude oil in the US increased by 2 to 289 rigs for the week to January 22, highest since May 2020, said Baker Hughes in a weekly report. The rigs count rose for the ninth straight week.

Iran has started ramping up its crude oil production eyeing a return to pre-sanction levels in a month or two somewhere between 3.9 million and 4 million barrel per day (bpd) amid hopes that the new US administration would lift sanctions imposed by the Trump administration on the country.

On the demand side of things, the International Energy Agency revised down its oil demand outlook for this year by 300,000 bpd. The authority said it expected demand to average 96.6 million bpd in 2021, after crashing by an all-time high of 8.8 million bpd in 2020 under the weight of the COVID-19 pandemic.

“Crude prices could continue to remain range-bound as Saudi’s pledge to cut output in February and March could offset weak demand concerns due to rise in COVID-19 cases in China. Inventory data next week could also interest investors as another rise could keep upside limited. Just like gold, US GDP data could impact markets as well”, said Sriram Iyer, Senior Research Analyst at Reliance Securities.

Sunand Subramaniam, Senior Research Associate at Choice Broking said, “For the week ahead, we are expecting Global and MCX Crude prices to witness downtrend with a rise in US crude inventories along with American stockpiles. Moreover, rising coronavirus cases in China has added worries regarding the demand in the industrial sector from top oil importer in the world.” “There is a possibility of the bigger stimulus package in the week ahead, COVID-19 worries continue to linger in the US, Europe and China even though OPEC member countries have reduced the supply cuts and still optimistic regarding the demand in the global market”, he said.

MCX iCOMDEX Crude Oil Index inched lowered 67.04 points, or 1.52 percent, to close at 4,357.78.

In the futures market, crude oil for February delivery touched an intraday high of Rs 3,865 and an intraday low of Rs 3,769 per barrel on MCX. So far in the current series, black gold has touched a low of Rs 3,486 and a high of Rs 3,958.

Crude oil delivery for February fell Rs 56, or 1.44 percent, to end at Rs 3,838 per barrel with a business turnover of 1,394 lots.

Crude oil delivery for March slipped Rs 122, or 3.11 percent, to close at Rs 3,800 per barrel with a business volume of 12 lots.

The value of February and March’s contracts traded on January 22 was Rs 1,073.36 crore and Rs 0.38 crore, respectively.

Technical view

Technically, WTI Crude Oil holds a strong resistance near $ 53.20 levels which could be a hurdle for further upside movement below which prices could consolidate in a range of $ 48.50-$ 53.20 levels in the coming sessions. Support is placed at $ 50.30-$ 48.50 levels while resistance is at $ 52.40-$ 53.20 levels, said Iyer.

He stated that MCX Crude Oil February is exhausting its strong upside momentum near the resistance zone of Rs 3,950-3,975 levels below it which could see a marginal fall of up to Rs 3,725-3,690 levels.

Kshtij Purohit, Product Manager Currency & Commodities, CapitalVia Global Research Limited, said “The candlestick is a shooting star for the week, just as it was the week before. The crude oil market is almost definitely running out of steam, and it’s just a matter of time before we could head down to the $ 50 stage. The market could go slightly lower after that, maybe hitting the level of $ 47.50 before finding substantial support from the weekly chart.


Reliance Securities advises its clients to sell February Crude oil at Rs 3,955-3,975 with a stop loss at Rs 4,050 and a target of Rs 3,690.

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