Crude recovered most of its losses from last week and moved higher this week on near-term fuel demand expected from the oncoming United States summer driving season. The opening up of global economies on the increased pace of vaccination, rising global equity markets and depleting US crude stockpiles provided additional support to the price.
Crude oil surged Rs 194, or 4.16 percent, during the week and rose during four out of five trading sessions on the domestic bourse.
The number of rigs drilling crude oil in the US jumped by 3 to 359 for the week to May 28, the highest since April 17, 2020, said Baker Hughes in a weekly report.
The CFTC data showed that money managers increased their net long positions by 18026 lots in last week.
The ‘black gold’ has been trading higher than 50, 100 and 200 days’ moving averages but lower than the 5 and 20 days’ moving averages on the daily chart. The momentum indicator Relative Strength Index (RSI) is at 51.71, indicating sideways movement in prices.
“Crude oil prices traded higher with prices still struggling to break the resistance of $ 68 per barrel. Crude oil prices witnessed a strong rebound on higher demand optimism on strong economic data. The Iranian supply concerns remain intact as traders and investors focused on demand growth”, Tapan Patel, Senior Analyst (Commodities), HDFC Securities.
Kshitij Purohit, Product Manager, Currency & Commodities, CapitalVia Global Research Limited, said, “The crude oil markets tried to cross resistance of Rs 4,900 and it continued to pressure the top of an ascending triangle. Most of the economies around the world have opened up, which means that we will see more demand for oil. If we give daily close above Rs 4,900, it will immediately open up for space towards Rs 5,000 plus on the daily chart.”
Fundamentals
The American Automobile Association expects as many as 37 million road travellers for the occasion, up 60 percent from last year’s pandemic-suppressed number of 23 million.
At the same time, many traders believe that US motorists could see the highest gasoline prices in seven years when they hit the roads this Memorial Day weekend. Retail gasoline prices are at about $ 3.04 a gallon on average nationwide, the most expensive since 2014, data from the American Automobile Association showed.
Crude inventories fell by 1.7 million barrels in the week to May 21 to 484.3 million barrels, while US gasoline stocks fell by 1.7 million barrels and distillate stockpiles, which include diesel and heating oil, fell by 3 million barrels.
Additionally, gasoline product supplied rose to 9.5 million barrels per day, a proxy for demand, while distillate demand was also higher.
Meanwhile, better than expected data from the US also suggests that the world’s largest economy is showing signs of recovery from the pandemic and could boost demand.
Crude oil delivery for June jumped by Rs 2, or 0.04 percent, to end at Rs 4,853 per barrel with a business turnover of 7,088 lots. The same for July delivery edged up by Rs 2, or 0.04 percent to Rs 4,856 per barrel with a business volume of 430 lots.
The value of June and July’s contracts traded on Friday was Rs 3,535.94 crore and Rs 35.84 crore, respectively.
West Texas Intermediate crude eased 0.28 percent to settle at $ 66.66 per barrel, while Brent crude, the London-based international benchmark, dropped 0.27 percent to $ 69.01 per barrel.
Outlook
Sriram Iyer Senior Research Analyst at Reliance Securities said, “Prices could move higher as demand could continue to lend support. However, concerns about Indian demand and expectations for potential supply increase from Iran could cap upside.”
“Markets will also look to cues from the OPEC+ meeting next week. OPEC+ is likely to stick to the existing pace of gradually easing oil supply curbs at a meeting, as producers balance expectations of a recovery in demand against a possible increase in Iranian supply. So, investors will wait for the details from the meeting, ” Iyer noted.
Technicals and Strategy for Next week
“However, on the charts, WTI Crude Oil holds the support of 21-Daily Moving Average which is placed at $ 65.13 level below which it can take price up to $ 62.85 levels. Resistance is at $ 68.00-$ 70.50 levels. Domestically, MCX Crude Oil June holds support near Rs 4,770-4,640 levels. Resistance is at Rs 4,930-5,009 levels,” Iyer added.
Reliance Securities advised its clients to sell Crude Oil June at Rs 4,950 with a stop loss at Rs 5,000 and a target at Rs 4,850.
Purohit expects that for the next trading week, traders should keep Buy on dips approach for MCX Crude oil future around the level of Rs 4,780-4,800, keeping a stop loss at Rs 4,720 and aiming for the target of Rs 4,970.
Crude oil prices to trade sideways to up with resistance at $ 68 per barrel with support at $ 63 per barrel. MCX Crude oil June contract has important support at Rs 4,970 and resistance at Rs 4,690 per barrel, said Patel.
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