The OPEC+ announced last week that the oil production will be cut by 100,000 barrels per day in October thus taking the production back to the levels of August. They noted that the production increase was only intended for September. Although prices went up on Friday, the Brent futures still ended the week on a loss. That is, the Brent futures on the Intercontinental Exchange (ICE) was down by nearly 1 per cent last week when it closed at $92.2 a barrel. Similarly, the crude futures on the Multi Commodity Exchange (MCX) lost 0.8 per cent last week and closed at ₹6,909 per barrel.
The decline for the most part of the last week was because of the fear of demand destruction and notably, there has been a substantial increase in the US crude inventory. According to the Energy Information Administration (EIA), crude stock went up by 8.8 million barrels for the week ended on September 2. In addition, the lockdown in China is another factor that is weighing on the prices since they are the largest consumer of the energy commodity.
Technically, the trend is bearish and the rally that was seen towards the end of last week may not sustain.
Brent futures ($92.2)
Even though the Brent futures rallied on Friday, it was unable to recoup all the losses and in fact, the contract lies below some key levels. One is the psychological level of $100 and above that is a resistance at $105. So, unless the contract decisively breaches $105, the inclination will be bearish, and the intermittent rallies will most likely be sold.
We expect Brent futures to start declining either from the current level of $92 or from around $100. Given the prevailing price action, a rally beyond $100 is less likely.
A decline from here can drag the contract to ₹86, a support, from where the contract had rebounded last time. But this time, the price could extend the fall below this level. Subsequent support is at ₹80. On the other hand, if the contract breaks out of ₹105, it can rise to ₹115, a strong barrier.
MCX-Crude oil (₹6,909)
After marking a low of ₹6,511, the MCX crude futures recovered to wrap up the week at ₹6,909. Thus, it closed below the ₹7,000-mark, a bearish sign. Also, the contract has been making lower highs and lower lows since June and now that it has breached a support at ₹7,000, more downsides can be expected.
In the near term, the contract can decline to ₹6,350 where bears can lose some traction since it is a strong support. After falling to ₹6,350, we expect the contract to enter a consolidation phase where it will most likely oscillate within ₹6,350 and ₹7,000.
Alternatively, if the contract rallies above ₹7,176 – its 21-day moving average, from the current level, it could move up to ₹7,500, a minor resistance. Above this lies the important resistance band of ₹7,850-8,000. If these levels are invalidated, the trend will turn bullish where the MCX crude futures could hit ₹9,000.