‘Geopolitics tension to keep crude oil prices higher in the near-term,’ says Pritam Kumar Patnaik, Head Commodities, Reliance Commodities
Pritam Kumar Patnaik
Last week, crude oil prices continued their upward trajectory as US oil producers in the Gulf of Mexico have cut their output by more than half as they prepare for a tropical storm.
Crude oil crossed $60 per barrel for the first time in the last couple of weeks. Oil companies in the Gulf of Mexico had cut output by more than one million barrels per day (bpd), or 53 percent of the region’s production, to brace the impact of tropical storm 'Barry'.
Prices continued to be buoyant on the back of falling US oil inventories. US crude oil inventories have witnessed drawdowns for four consecutive weeks.
Crude inventories fell by as much as 9.5 million barrels by July 5, the Energy Information Administration (EIA) said, against analyst expectation of 3.1 million-barrel draw.
Meanwhile, the situation in the Middle-East continues to be volatile as fresh tension emerges between Iran and the US/UK. Iran allegedly attempted to block a British-owned tanker this week after the UK confiscated an Iranian tanker.
While the US government ratcheted up the tensions in the region by further increasing trade and oil embargoes on Iran.
Iran has retorted by re-starting its nuclear program, well beyond the prescribed levels decided in the US-Iran nuclear agreement. As long as there are tensions in the Strait of Hormuz, crude supplies will remain disrupted.
Speculators are bullish on the commodity after US CFTC data showed that oil speculators raised WTI net long positions by 12,124 contracts to 182,237 on July 2.
Oil traders also shrugged off weak demand report from OPEC this week. OPEC has forecasted that the global oil demand is expected to rise only by 1.14 million barrels per day (bpd) next year, matching the projection for 2019.
Additionally, OPEC also forecasted an acceleration in non-OPEC supply growth to an average of 2.44 million bpd in 2020, from an expected 2.05 million bpd this year.
To summarize, MCX Crude July 2019 contract medium-term trend will continue to be positive. Any dips are going to be temporary in nature.
On the upside, we expect prices to move towards Rs 4,300-4,350. On the downside, Rs 4,000 is the immediate support followed by Rs 3,850, which is medium-term support.
Technically, in the last week MCX Crude July 2019 contract prices managed to find support near Rs 3,950-3,930 and recovered on the upside towards Rs 4,167 that is the high of last week.
This has formed a bullish candlestick pattern that suggests in the near-term, Rs 3,860-3,850 is the base support area. As long as prices remain above this zone, the trend will remain a buy-on-dips mode.
On the daily chart, prices are testing the upper range of the consolidation area. Thus some sideways action cannot be ruled out but any dips are going to be temporary in nature.
The 10-day EMA is decisively sustaining above 20-day EMA. As long as this continues, the trend will be bullish. On the downside, Rs 4,000 followed by Rs 3,850 will act as support levels.
Whereas, a close above Rs 4,170 will indicate that the trend is continuing. The strategy for the week in Crude Oil July 2019 contract will be to buy in the range of Rs 4,070-4,030 with Rs 3,850 as a stop loss and target price of Rs 4,300.
Gold: Buy Gold August 2019 contract in the range of Rs 34,500-34,600 with Rs 34,360 as stop loss and target price of Rs 35,000-35,150.
Copper: Buy Copper July 2019 contract in the range of Rs 436-438 with Rs 432.90 as stop loss and a target price of Rs 453.
Zinc: Buy Zinc July 2019 contract in the range of Rs 192.50-192.00 with Rs 191.00 as a stop loss and a target price of Rs 197-198.
Nickel: Buy Nickel July 2019 contract in the range of Rs 915-920 with Rs 900 as stop loss and a target price of Rs 960.
Soybean: Buy Soybean August 2019 contract in the range of Rs 3,610-3,620 with Rs 3,570 as a stop loss and a target price of Rs 3,730.
The author is Head Commodities, Reliance Commodities.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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