By Bhavik Patel
Oil price is set for a second consecutive weekly gain thanks to the support from OPEC+ where Saudi Arabia agreed to extend their voluntary cut of 1 million bpd while Russia also committed to cut its production by 5,00,000 bpd. The two measures would take 1.5 million bpd off the market in August at a time when growth in production in the U.S. is slowing down and about to reverse later in the year. US inventory also has trickled down as it was the third consecutive inventory draw, strengthening the impression of a stronger demand environment in the world’s largest consumer of crude oil.
Markets are going in backwardation which means prices are higher for immediate delivery due to strong demand. This could be due to destocking of physical crude. For oil refineries and trading companies, the cost of holding oil in tanks has become much more expensive and traders are destocking and selling off physical barrels because the costs to hold crude is getting higher. Rs 5,550 in MCX is now strong support while crude is near its resistance of Rs 6,000-6,100.
The upside seems limited due to stiff resistance but if there is any correction, it would be a good opportunity to go long. If one wants to take position at current juncture, one should go long only but with small quantities as mentioned earlier that crude is near to its resistance zone so we might see some profit booking around that level. Any correction till Rs 5,750-5,780 is a good opportunity to go long with expected target of Rs 6100 and stoploss of Rs 5600 closing basis. Trend remains bullish but any trader looking for fresh position at current juncture could either trade in small quantities or wait for small correction around Rs 5,780 to take long positions.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)