The sentiment of crude oil has been bearish for long time as since June 2022, prices have been steadily declining. The peak in June was around 9635 in MCX and prices have corrected till 6292 in Sept before bouncing back till 7710. However the bounce proved short lived and once again price is near to its support zone of 6700. It all started with recessionary pressure as US Fed started raising rates too fast to control inflation and there were warning signs from Europe and Asia that economy was slowing down. In slowing economy, demand for crude slows down which is why the selling pressure started and now China’s lockdown has taken centre stage. China is one of the biggest importers of crude and the lockdown is creating demand destruction. OPEC+ since April has five time downward forecasted world oil demand. Even OPEC+ mega cut of 2 million barrels per day failed to sustain crude oil at higher levels.
Also Read – Government removes export duties on steel products and iron ore, know why
China reported 23,276 new covid cases on Wednesday, its National Health Commission said on Thursday, compared to 20,199 a day earlier. On top of that, JP Morgan’s forecast this week that the United States will enter a recession next year thanks to the Fed’s continued rate hikes, dampening the outlook for oil demand. US shale production has also surpassed pre-covid levels but there is some silver lining for crude. Supply side will remain vulnerable as OPEC+ are going to cut their production further to boost the price. So in the short to medium term, we may not see sharp recovery on the upside but we may see price coming close to bottom. Another reason for bulls to cheer is that EU will put oil embargo to Russia on 5 Dec. OPEC+ may overtighten the market, in view of the huge uncertainties surrounding Russian oil supply in just three weeks time.
Also Read – WhatsApp’s new feature to help desktop users protect chat screens using password
For next week, Crude Dec contract in MCX has support in range of 6500-6300 which was previous swing low made around Sept. We have already seen sell crossover of 20 and 50-day moving average while momentum oscillator RSI_14 is around 38 showing there is further room on the downside. Participants might be tempted to go long looking at price correction however there aren’t any indication on daily chart of trend reversal so one should wait for any bottom formation before taking long position. Short position holders can take profit off the table. Next week any correction in range of 6600-6500 should be utilized to go long for intraday purpose with stoploss of 6400 and expected bounce back till 6800.
