Crude oil corrects over rise in US inventories, Iran nuclear talks; Brent plunges 6.75% from Wednesday highs

Crude oil futures plunged over 2 percent as Energy Information Administration data showed an increase in US crude stockpiles, broad sell-off in commodities and equities market and rising coronavirus cases in Asia denting demand. The reports of significant progress made on US-Iran nuclear talks also weighed on the price.

On the MCX, crude oil delivery for June slumped Rs 96, or 2.06 percent, to Rs 4,573 per barrel at 16:14 hours IST with a business turnover of 7,482 lots. While delivery for July slipped Rs 96, or 2.05 percent to Rs 4,591 per barrel with a business volume of 4,591 lots.

The value of June and July’s contracts traded so far is Rs 1,514.08 crore and Rs 14.80 crore, respectively.

West Texas Intermediate (WTI) crude was down 1.77 percent to $62.22 per barrel, while Brent crude, the London-based international benchmark slides 2 percent to $65.34 per barrel.

Brent crude has fallen 6.75 percent or $4.74 from the highs of $70.24 it touched on Wednesday.   

“NYMEX crude trades lower near $62.3/bbl. Crude is mixed as support from US EIA weekly inventory report, increased Middle-east tensions and improving virus situation in the US and Europe is countered by increasing virus-related restrictions in Asia, the prospect of higher supply from Iran and concerns about Chinese demand. Crude oil may remain volatile amid mixed factors however US inventory reports may keep a floor to prices”, Ravindra Rao, CMT, EPATVP-Head Commodity Research, Kotak Securities Ltd.

Tapan Patel- Senior Analyst (Commodities), HDFC Securities said, “Crude oil prices pared some of the previous gains after falling by more than3%. Crude oil futures may cap upside on progress over Iran nuclear talks. Crude oil prices may witness selling on mounting worries over higher inflation and rising virus cases in other Asian countries apart from India. The crash in cryptocurrencies has supported dollar index to trade firm which may pressure oil prices.”

The US Energy Information Administration (EIA) reported that US crude oil inventories jumped by 1.3 million barrels for the week ended May 14.

US inflation has led market players to speculate whether the rising US inflationary pressure could prompt Fed to pare back its support sooner than many anticipate.

Lower consumptions and falling demand from India’s industrial segment due to the implacable pandemic and strict lockdown in many regions was a considerable headwind for the Oil prices.

Technicals

The black gold has been trading higher than 100 and 200 days' moving averages but lower than the 5, 20 and 50 days’ moving average on a daily chart. The momentum indicator Relative Strength Index (RSI) is at 42.98, indicating bearish movement in prices.

Trading Strategy

Crude oil prices are expected to trade sideways to down for the day with resistance at $65 and support at $62.50 per barrel. MCX Crude oil June has support at Rs 4,590, resistance at Rs 4,730, said Patel.

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