Oil prices rally 3% on strong demand outlook; likely to trade higher in coming week

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Crude oil prices jumped for the fourth week and rallied over 3 percent last week to settle at Rs 5,291 per barrel on a higher demand outlook, a decline in US crude inventory and lower supply concern. The sentiments were also supported by comments from OPEC and IEA on global oil demand in the wake of economic rebound and pickup in vaccination.

Crude oil rose by Rs 164, or 3.12 percent, during the week and jumped during three out of five trading sessions on the domestic bourse.

Tapan Patel, Senior Analyst (Commodities), HDFC Securities, said, “Crude oil prices reported fourth weekly gain on the trot on lower supply concerns and higher demand outlook. Crude oil prices extended gains on slower output recovery in the Gulf of Mexico from the impact of the three-week-old Hurricane Ida. As of Thursday, 28.24 percent of the production in the US Gulf Coast of Mexico remained shut.”

“Crude oil prices capped weekly gains with profit booking on Friday pressured by a stronger dollar and weak global cues,” Patel noted.

OPEC on September 13 said that it anticipates global oil demand to exceed its pre-pandemic level next year on a faster rollout of vaccines and economic rebound. It raises 2022 global oil demand consumption to grow by 4.2 million barrels per day (mbd). 

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.

As per reports from the Energy Information Administration (EIA), US Crude inventories slipped over 6.4 million barrels surpassing the market expectation of a 3.5-million-barrel drop. 

The CFTC data showed that money managers increased their net long positions by 24870 lots in last week.

China is expected to hold its first auction in the coming week and the amount of crude stocks to be sold is very small in comparison to China’s consumption. However, the move is more symbolic as it indicates that China will tap reserves to keep a check on prices.

US retail sales jumped 0.7 percent in August as against a forecast of 0.8 percent decline aided by online sales, said US Commerce Department.

The ‘black gold’ has been trading higher than 5, 20, 50, 100 and 200 days’ simple moving averages and exponential moving averages on the daily chart. The momentum indicator Relative Strength Index (RSI) is at 58.59, suggesting upbeat movement in prices.

Crude oil delivery for September fell by Rs 60, or 1.22 percent, to close at Rs 5,291 per barrel with a business turnover of 1,432 lots. The same for October delivery dropped by Rs 63, or 1.18 percent to Rs 5,282 per barrel with a business volume of 2,647 lots.

The value of September and October’s contracts traded on Friday was Rs 940.87 crore and Rs 854.74 crore, respectively.

West Texas Intermediate crude declined 0.81 percent to settle at $71.97 per barrel, while Brent crude, the London-based international benchmark slipped 0.48 percent to $75.31 per barrel.

Recommendation

Patel expects crude oil prices to trade up with resistance at $74 per barrel with support at $70 per barrel. MCX Crude oil October contract has support at Rs 5,120 and resistance at Rs 5,410 per barrel.

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Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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