Crude could eke out small gains this week extending gains from the previous week as upbeat data from China and easing of lockdowns in the US and certain parts of Europe have suggested a strong rebound in demand.
Crude oil rose Rs 37, or 0.78 percent, during the week and jumped during two out of five trading sessions on the domestic bourse.
The market continued to show signs of strength and confidence that global demand can continue to press higher despite a rise in COVID-19 cases in India.
Additionally, prices also took support as data showed a sharp drawdown in US crude stocks.
The 'black gold' has been trading higher than 20, 50, 100 and 200 days' moving averages but lower than the five-day moving average on the daily chart. The momentum indicator Relative Strength Index (RSI) is at 57.55, indicating positive movement in prices.
Sunand Subramaniam, Senior Research Associate, Choice Broking, said, “We are expecting global prices to witness a bullish trend as the demand in western countries continues to increase. However, the sluggish tone from India, the third-largest importer, is expected to cap extreme bullishness, as various states have imposed lockdown amid the second wave of COVID-19 and worries of the third wave.”
Kshitij Purohit, Product Manager, Currency & Commodities, CapitalVia Global Research Limited said, “The WTI Crude Oil market came a bit up as lower crude production in Libya offset expectations.”
The US Energy Information Administration (EIA) reported that US crude oil inventories dropped by 8 million barrels for the week ended April 30 against a forecast of 2.3 million barrels decline. Exports rose to 4.1 million bpd, the most since March of last year, and refining output was at its highest since that month as well.
The number of rigs drilling crude oil in the US increased by 2 to 344 for the week to April 30, the highest since April 2020, said Baker Hughes in a weekly report.
A US energy company Colonial Pipeline says a cyberattack forced it to temporarily halt all operations on a major pipeline that delivers roughly 45 percent of all fuel consumed on the East Coast, reports Associated Press.
The attack took place on Friday and also affected some of its information technology systems. The company transports gasoline, diesel, jet fuel and home heating oil from refineries primarily located on the Gulf Coast through pipelines running from Texas to New Jersey.
Fundamentals
In India, refiners' local fuel sales in April declined due to state-level restrictions aimed at stemming a rampant second wave of coronavirus infections. Overall fuel demand is down by about 7 percent from the pre-COVID level of April 2019.
Meanwhile, in other news, some respite to Asian buyers can be expected after Saudi Arabia’s state energy firm, Saudi Aramco, cut its June pricing for Asia by between 10 and 30 cents per barrel.
At the same time, this also suggests that producers are concerned about the rise in COVID-19 infections and its impact on demand.
Crude oil delivery for May dropped by Rs 30, or 0.63 percent, to end at Rs 4,760 per barrel with a business turnover of 5,196 lots. The same for June delivery declined by Rs 23, or 0.48 percent to Rs 4,786 per barrel with a business volume of 449 lots.
The value of May and June’s contracts traded on Friday was Rs 4,318.89 crore and Rs 71.78 crore, respectively.
West Texas Intermediate crude modestly gained 0.20 percent to settle at $64.84 per barrel, while Brent crude, the London-based international benchmark slightly up 0.21 percent to $68.23 per barrel.
Outlook
Sriram Iyer Senior Research Analyst at Reliance Securities
The only negative news for prices this week was a rise in virus cases in India, Brazil and Japan. Fears will persist if the current second wave is not controlled quickly.
Additionally, investors fear that an inevitable third wave will also elevate concerns of extension of lockdowns beyond May in India to curb the COVID-19 pandemic.
Furthermore, OPEC+ output has increased in May and coupled with weak demand from India, prices could remain subdued next week.
However, investors will hope that the summer driving season in the US along with the re-opening of economies in the UK and Europe and a strong economic rebound in China could offset weak demand concerns from India and other nations.
Technical and Strategy for next week
“On the charts, WTI June could see a sideways momentum as it holds a strong resistance near $66.70-$68.00 levels while support is at $63.00-$60.66 levels. Domestically, MCX Crude Oil May is holding support of 21-Daily Moving Average which is placed at Rs 4,700 level from where a bounce-back could take it to Rs 4,875-4,940 levels. However, below Rs 4,695 level could see a bearish momentum up to Rs 4,600-4,530 levels,” Iyer added.
According to Purohit, “for the next week, traders should look forward to sell-on-dips approach for MCX Crude oil future from the resistance of 110-SMA of hourly chart placed at Rs 4,680–4,690, keeping a stop loss around Rs 4,740, aiming for the target at Rs 4,500."
Reliance Securities advised its clients to buy Crude Oil May near Rs 4,700 with a stop loss at Rs 4640 and a target at Rs 4830.
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