Buy Crude oil; may rally till USD 116.5, says Emkay

Emkay's special report on Crude oil

Indian Rupee has showed its new all time low against US dollar and all other major currencies. Indian Rupee has weakened more than 13 percent in 3 weeks and is expected to weaken further. Recent move by Indian Government to approve Food Bill ahs pressurized Indian debt by USD 20bln. This created a spark in the mind of investors and fear increased that ever increasing India’s CAD, the main reason behind Indian Rupee to go down is widened. This move itself pushed INR down around 7 percent in three days. Increasing Bond yields and lower Indian Equity markets all has pushed Indian Rupee to fall further down. Other factors which is impacting INR is ever increasing commodity prices and upcoming festival season which has increased the demand for Crude Oil and Gold in India. All these factors together can push Indian Rupee further till 70/USD and further.

Libya's largest western oilfields are closed when an armed group shut down the pipeline linking them to the ports. Output for Crude oil will be reduced from Libya Total Libyan oil output would be just under 200,000 barrels per day from pre-war levels of around 1.6 million bpd. Strikes by workers have disrupted oil exports and output of Libya resulting in further supply glitch for Crude Oil. In the east, striking workers, who had already cut Libyan oil output by over half, want more power for the eastern region. The Libyan oil ports of Es Sider, Ras Lanuf, Zueitina and Marsa al Hariga, which are in the east where most of the country's oil production lies, remained closed due to the strikes by the workers.

Looking at the recent Demand-Supply gap given by EIA, it is observed that Crude Oil Demand is expected to outpace the supply by 0.37bbpd in coming days. The major reason is the supply glitch formed due to increasing tensions in Libya and declining oil inventories in Cushing, Oaklahoma. Overall inventories in Cushing for WTI which was soaring few months back has shown a draw down and has helped Crude oil prices to sustain near USD 106-108. In coming months according to the chart below we can see that demand is outpacing Supply and can support the prices further.

We recommend buying in Crude oil at USD 110 - 109.5 to move up further till USD 116.5 and stoploss of USD 105

In MCX Crude prices can get further support due to INR so Buying at Rs 7500-7450 for the target of Rs 8150 and stoploss of Rs 7150

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