Crude oil price tumbles 2% on selloff in commodity and equities; Brent trades below $75/bbl

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Crude oil prices slid below Rs 5,200 per barrel on September 20 on appreciating dollar, the selloff in equity markets and commodities, production normalising in the Gulf of Mexico, and China’s plan to sell crude from its reserves. The oil price was also pressured by rising US crude rig count and concerns about Federal Reserve monetary tightening.

The energy commodity extended decline to trade at day’s low after a gap-down start, tracking tepid overseas cues.

On the MCX, crude oil delivery for October dipped Rs 97, or 1.84 percent, to Rs 5,189 per barrel at 17:07 hours IST with a business turnover of 3,978 lots. The delivery for November fell Rs 96, or 1.82 percent to Rs 5,185 per barrel with a business volume of 60 lots.

The value of October and November’s contracts traded so far is Rs 767.45 crore and Rs 4.79 crore, respectively.

West Texas Intermediate (WTI) crude dropped 1.75 percent to $70.56 per barrel, while Brent crude, the London-based international benchmark, slipped 1.41 percent to $74.28 per barrel.

“NYMEX crude trades more than 2% lower near $70.1/bbl. Weighing on crude price is firmness in the US dollar and weakness in equities amid Fed’s monetary tightening concerns and worries about the Chinese economy. Also weighing on price is a rise in US crude oil rig count to April 2020 highs, China’s plan to auction stocks from emergency reserves, and easing supply worries relating to Libya. However, supporting price is tighter in the US market amid slow restart of production shut in the Gulf of Mexico. Crude has turned choppy after the recent rally and we may see some extended correction if equities remain under pressure”, said Ravindra Rao, CMT, EPAT, VP- Head Commodity Research at Kotak Securities.

Prathamesh Mallya, AVP Research Non-Agri Commodities and Currencies, Angel Broking Ltd said, “Despite the expectation of revival in global demand, appreciating US currency and China’s plan to sell its state crude oil reserves to few domestic refiners might weigh on Crude in the week ahead.”

“Appreciating US dollar, slow growth in China’s economy, gradual recovery in US Oil output and widening impact of the pandemic might be a headwind for crude prices in the week ahead”, he noted.

The number of rigs drilling crude oil in the US increased by 10 to 411 for the week to September 17, the highest since April 2020, said Baker Hughes in a weekly report.

The CFTC data showed that money managers increased their net long positions by 24,870 lots in last week.

Technicals

The black gold has been trading higher than 20, 50, 100, and 200 days’ moving averages but lower than the 5-day moving average on the daily chart. The momentum indicator Relative Strength Index (RSI) is at 53.59, which indicates sideways movement in the prices.

Trading Strategy

Tapan Patel- Senior Analyst (Commodities), HDFC Securities

Crude oil prices traded lower pressured by a stronger dollar and weak global cues. The US oil rig count rose by 10 to 411 last week as per data published by Baker Hughes. The stronger dollar has capped upside in oil prices with broad selling in the commodity segment. 

Crude oil prices are expected to trade sideways to down for the day with resistance at $72 and support at $69 per barrel. MCX Crude oil September has support at Rs 5,150, resistance at Rs 5,310.

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