Crude oil prices witnessed an upsurge last week. The Brent futures on the Intercontinental Exchange (ICE) produced its biggest weekly gain since March by rallying 11.3 per cent as it ended the week at $97.9 per barrel. Similarly, the crude oil futures on the domestic Multi Commodity Exchange (MCX) gained 16.6 per cent as it closed the week at ₹7,627 a barrel, its biggest weekly gain since March.
The sharp ascent in prices was triggered by the announcement of a larger than expected production cut by the OPEC (Organisation of Petroleum Exporting Countries) and its allies, together called OPEC+. Broad expectation was that the organisation would go for a cut by about 1 million barrels per day (mb/d). However, the group announced a downward revision in production by 2 mb/d from November in a move to spur prices.
The announcement is creating more geo-political jitters as the US is now considering filing an antitrust case against OPEC for its latest production cut. This apart, Europe announced an eighth round of sanctions against Russia, one of the largest producers of energy commodities, last week. The restrictions include import of Russian steel and machinery, and export of machinery and components in a move to target their military and industrial complex.
The upside was also supported by a drop in inventories in the US. According to the latest EIA (Energy Information Administration), the crude oil stocks fell by 1.4 million barrels versus the expected increase of 1.7 million barrels for the week ended September 30.
So now, the fundamentals and geo-politics have taken centre stage with respect to oil prices pushing the demand concerns to the back seat.
Brent futures ($97.9)
Moving past the minor hurdle at $88, the Brent futures closed last week at $97.9 within the resistance band of $95-100. By taking into account the positive momentum created last week, the contract can breach the $100 in the upcoming sessions.
As the price is above 20- as well as 50-day moving averages and that a trendline resistance is breached, the bulls seem to be gaining ground. The contract can probably rally past the barrier at $105 and touch $115 from where there could be a correction.
Alternatively, if the contract fails to get past the $100-mark and declines from here, the price area of $88-90 can offer some support for the contract. Subsequent support is at $80.
MCX-Crude oil (₹7,627)
The MCX crude futures (October expiry) rallied through last week and it went above some key levels. The contract invalidated a falling trendline resistance and the price is now above both 20- and 50-day moving averages. Contrary to our expectation, the contract went above the ₹7,000-mark and it closed the week at ₹7,627 versus the preceding week’s close of ₹6,539.
As it stands, the contract is set to appreciate further. The bullishness is substantiated by the RSI and the MACD on the daily chart, which have now entered the positive territory. Moreover, the outstanding Open Interest (OI) has seen a considerable increase to 13,315 contracts as against 8,836 contracts by the end of the previous week. This occurred along with a price rally indicating a fresh long build-up.
Given the current upthrust, the contract can be expected to rally to ₹8,350, a resistance level, where the 61.8 per cent Fibonacci retracement level of the previous downtrend coincides. Post hitting this level, there might be a correction to ₹8,000. A breakout of ₹8,350 can lift the contract to ₹8,900.
On the other hand, in case the contract slips below ₹7,000, the rally could end up being nothing more than a knee-jerk reaction where we could see the contract declining to retest ₹6,300.