Crude Check: Ripe for consolidation?

Akhil Nallamuthu |BL Research Bureau | Updated on: Jun 25, 2022

Yet, the bias remains bullish

Crude oil prices are caught between supply tightness, which puts upward pressure, and the recessionary fears, which weighs on the energy commodity because of its potential impact on demand. After a mid-week drop, the prices recovered on Friday.

The OPEC Plus (Organisation of the Petroleum Exporting Countries Plus), grouping of the OPEC and other major crude oil producing nations, meets next week when a decision on the output levels will be made. According to a report by S&P Global Commodity Insights, the OPEC+ has underproduced 2.6 million barrels a day in May. This clearly shows the supply concerns. That said, the group may not increase the output over and above the current target of 648,000 barrels a day for July and August despite the price ruling at higher levels. There have been concerns over demand in the coming months because of a potential slowdown in the global economy.

Overall, the crude prices will continue to see higher volatility in the near term.

Brent futures ($113.1)

The continuous Brent futures contract on the Intercontinental Exchange (ICE) closed flat last week at $113.1 a barrel. In line with our expectation, the price dropped initially and then bounced off the support at $108. Therefore, a rising trendline continues to hold good and this hints at the contract forming a higher low. Nevertheless, there is a barrier at $115.

Hence, there might be a temporary consolidation in price between $108 and $115.

A breakout of $115 can lift the contract to the $120-122 resistance band. A breach of this can take it to $130. Alternatively, if the price drops below $108, it might decline to the support band of $98-100.

MCX-Crude oil (₹8,384)

The crude oil futures on the Multi Commodity Exchange (MCX), which went up initially, saw a sharp drop on Wednesday to mark an intraweek low of ₹7,966. But as we expected, the contract rebounded by responding to the support at ₹8,000. Overall, the MCX-crude futures closed the week almost flat at ₹8,384 versus preceding week’s close of ₹8,373.

In the upcoming sessions, the contract might see a consolidation, like the Brent futures, where the price could fluctuate between ₹8,000 and ₹8,800.

Given the overall bullish bias, the contract could eventually move past ₹8,800 and rise towards ₹9,400. A breakout of this level can result in a rally to ₹10,000.

But on the other hand, if the contract breaks below the support at ₹8,000, it can possibly decline to ₹7,600 – a support level. Subsequent support is at ₹7,200. This is an important level because a breach of this base can turn the trend bearish.

Published on June 25, 2022
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