Brent up 5% in June on demand outlook: How to place bullish bets on MCX crude?

Brent futures rose four cents, or 0.1 per cent, to $85.75 a barrel, while US West Texas Intermediate (WTI) crude for August delivery remained unchanged at $81.29 from where it closed on Thursday. That put Brent on track for its highest close since April 30 for a second day in a row and a second straight weekly gain.

Also Read: RBI MPC Minutes: Food inflation ‘persistently high’, price stability bedrock for high growth; 5 key highlights

WTI, meanwhile, closed at $82.17 a barrel on Thursday, its highest since April 29 when the higher-priced July contract was still the front-month. For the week, both crude benchmarks were up about four per cent for a second week in a row. Coming to domestic prices, crude oil futures last traded 0.96 per cent lower at 6,743 per barrel on the multi commodity exchange (MCX).

What’s driving crude oil prices?

-A stronger US dollar helped keep crude oil prices in check. The US dollar rose to a seven-week high compared to the basket of other currencies, with Jerome Powell-led US Federal Reserve’s patient approach to cutting interest rates contrasting with more dovish stances elsewhere.

-The US Fed hiked interest rates aggressively in 2022 and 2023 to tame a surge in inflation. Those higher rates boosted borrowing costs for consumers and businesses, which can slow economic growth and reduce oil demand. A stronger US dollar can reduce demand for oil by making dollar-denominated commodities like oil more expensive for holders of other currencies.

-In the US, the world’s biggest oil consumer, business activity crept up to a 26-month high in June amid a rebound in employment. Still, the price pressures subsided considerably, offering hope that a recent slowdown in inflation was likely to be sustained.

Also Read: Built-in capacity to targets: Why OPEC+ members clash over oil production capacity—Explained

-US data from the Energy Information Administration, meanwhile, showed total product supplied, a proxy for oil demand, rose by 1.9 million barrels per day (bpd) in the week ending June 14 to 21.1 million bpd.

-According to analysts, the seasonal demand increase, as shown by the latest EIA data, renewed confrontation between Israel and Hezbollah, and the hurricane season could sustain price strength into the summer season.

-Amid mixed global demand signals, Indian refiners processed nearly 1.3 per cent more crude oil in May than a year earlier, provisional government data showed, while the share of Russian supplies in imports to the world’s third-biggest oil consumer increased.

-However, in the Euro zone, business growth slowed sharply this month as demand fell for the first time since February. In China, the world’s second biggest oil consumer, Beijing warned that escalating frictions with the European Union (EU) over electric vehicle imports could trigger a trade war.

-Meanwhile, Ukraine’s military said its drones struck four oil refineries, radar stations and other military objects in Russia. The head of Lebanon’s Hezbollah this week pledged a full-on conflict with Israel in the event of a cross-border war and also threatened EU member Cyprus for the first time.

Also Read: Expert View | OPEC to extend supply curbs till 2H; Crude oil seen at $70-$90 in 2024: Kotak’s Kaynat Chainwala

Where are prices headed?

WTI crude oil futures rose for the fourth consecutive day this week and are poised for the second weekly gain in a row, as heightened geo-political tensions propped up the risk premium, according to Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.

‘’Robust US job data this week raised concerns that the Federal Reserve may hold interest rates higher for longer, undermining prospects for economic growth and energy consumption. We expect crude oil prices to remain volatile. Crude oil has support at $80.45-$79.70 and resistance at $81.80-$82.50. In INR, crude oil has support at 6,720- 6,640, while resistance is at 6,880- 6,950,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Domestic brokerage firm Choice Broking is bullish on MCX crude futures and suggests traders to ‘buy’ MCX over 6,800 per barrel in the current scenario.

Choice Broking on MCX: Buy Crude Oil- July futures @ 6,805, add up to 6,770, for the targets of 7,325 – 7,675, with a stop loss of 6,490

WTI crude spot has moved positively over the course of the past couple of weeks and likely to continue its momentum in upcoming sessions, according to the brokerage. MCX crude oil July contract is trading over 6,800 level currently and on the other side, WTI Crude spot has started trading over $81/ barrels. WTI crude oil spot has been traded with positive bias after holding support near 200-EMA level on weekly chart placed at $75.68.

On the weekly chart, crude price has breakthrough the resistance-line of descending broadening wedge formation in this week. The major support level on the weekly chart would be at 200-EMA level placed at 6,003.

‘’Looking at daily timeframe, we can observe that crude price has been trade with higher high closing for past 13-consecutive sessions and price has formed a Rising channel formation along with crossover on 50 and 100-EMA level,” said Choice Broking.

The momentum indicator, RSI levels have turned positive and trailing over 50-60 levels on all key timeframes. Also, a convergence on MACD lines along side declining negative histograms collectively suggests positive signs for crude price.

‘’Expectations are for a bullish trend in crude oil prices in the upcoming sessions, prompting traders to consider long positions aiming for a target of 7,325 – 7,675, with a designated stop loss in place,” said Choice Broking.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.

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Published: 21 Jun 2024, 10:25 PM IST

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