Crude oil prices continued downward trend as OPEC+ settled their internal dispute and agreed to boost production, rising dollar, surging cases of Delta variant and mixed economic data. The prices tumbled Rs 122 or 2.22 percent last week on the MCX.
Crude prices have corrected Rs 473 or 8.31 percent from the high of Rs 5,695/barrel it touched on July 5.
The energy commodity extended decline to trade at day’s low after a gap-down start tracking the weak global trend.
On the MCX, crude oil delivery for August dropped Rs 135, or 2.51 percent, to Rs 5,240 per barrel at 16:36 hours IST with a business turnover of 5,975 lots. The delivery for September lowered by Rs 141, or 2.64 percent to Rs 5,208 per barrel with a business volume of 48 lots.
The value of August and September’s contracts traded so far is Rs 1,120.54 crore and Rs 315.80 crore, respectively.
West Texas Intermediate (WTI) crude declined 2.79 percent to $ 69.56 per barrel, while Brent crude, the London-based international benchmark, slipped 2.62 percent to $ 71.66 per barrel.
Tapan Patel- Senior Analyst (Commodities), HDFC Securities said, “Crude oil prices reported the worst week in months on expectations of OPEC deal and weaker demand. Crude that Saudi Arabia and the UAE have reached a compromise, paving the way for OPEC+ producers to end an uncertainty that had bogged down the market and prices for weeks. Crude oil prices declined with a rise in product inventories as per weekly data released by US EIA signalling slower fuel demand recovery. The concerns of Delta variant spreading added pressure to the prices with the surge in daily cases in the UK.”
“NYMEX crude trades more than 2.5% lower near $ 69.70/bbl. Crude weakened as market players reacted to the OPEC+ deal to raise output from August and revise the baseline production level from May 2022. Also weighing on crude price is rising virus cases, mixed economic data from major economies, the slowdown in Chinese economy and rise in US crude rig count to April 2020 highs. Crude may remain choppy as market players assess OPEC+ decision and amid positioning for the expiration of the August contract. However, OPEC’s deal removes uncertainty from the market and may keep a floor to crude prices,” said Ravindra Rao, CMT, EPAT-Quantinsti, Head – Commodity Research at Kotak Securities Ltd.
The US CFTC data showed that money managers increased their net long positions by 7,621 lots in last week.
The number of rigs drilling crude oil in the US rose by 2 to 380 for the week to July 16, said Baker Hughes in a weekly report.
The UAE’s baseline for oil production will be increased from 3.16 million barrels per day (Mbpd) to 3.5 Mbpd, while Saudi Arabia’s baseline will be raised to 11.5 Mbpd from 11 Mbpd.
Technicals
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 42.99, which indicates a bearish movement in the prices.
Trading Strategy
Tapan Patel- Senior Analyst (Commodities), HDFC Securities
Crude oil extended decline on OPEC agreement on output hike and lower demand concerns from rising virus cases. OPEC+ ministers agreed on Sunday to increase oil supply from August to cool prices after rallying to the highest since 2018. OPEC plus nations also agreed to new production quotas for several members from May 2022 to overcome internal divisions including the UAE, Saudi Arabia, Russia, Kuwait and Iraq.
Crude oil prices are expected to trade sideways to down for the day with resistance at $ 72 and support at $ 68 per barrel. MCX Crude oil August has support at Rs 5,180, resistance at Rs 5,320.
Kshitij Purohit, Product Manager, Currency & Commodities, CapitalVia Global Research Limited
MCX Crude oil is trading with bearish bias below Rs 5,350 levels and already declined more than 3 percent. We may expect the prices to continue to trade with bearish momentum in the evening session where Rs 5,200 levels may be breached.
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