By Bhavik Patel
Crude oil has managed to sustain its gain after OPEC+ cut production. According to the US EIA, despite OPEC+’s surprise production cut, the global oil market will remain in surplus this year and next as demand growth could be hurt by lower-than-expected economic growth in the coming months. However, that statement is contrary to what the market believes. Market expects tight supply with cuts from OPEC+.
Demand for crude is expected to increase both from China and India. India’s fuel demand increased by 5% in March compared to a year earlier, reaching 20.5 million tons. Demand for both gasoline and diesel climbed in March compared to March last year and February this year. Fuel consumption in India is expected to rise by 4.7% in the fiscal year between April 2023 and March 2024. Bulls have maintained control despite the US inventory build up we saw this week.
In MCX, crude is now in an overbought zone as momentum oscillator RSI_14 is trading at 69. Crude also has resistance at current level due to the 200-day moving average on daily scale. In the previous instance, at the peak in Oct and Nov 2022, price failed to cross above 200-day moving average, so we can expect strong resistance at current levels. 6500 seems to be strong support as after the surprise decision by OPEC+ to cut production, price has taken multiple support in proximity of 6500 but has bounced back.
For the past 10 days, crude was trading in a narrow range of 200 points mainly trading between 6500-6700. On Wednesday, we saw the range breakout but the conviction for buy is not strong due to the overbought zone. Instead we would recommend waiting for any meaningful correction before taking any position. Any longs should be held with stoploss of 6500 and fresh shorts can be taken below 6500 for expected downside target of 6300 and stoploss of 6600. At the current level, avoid taking any positions.
(By Bhavik Patel, Commodities and Currency Analyst, Tradebulls Securities. Views expressed are author’s own. Please consult your financial advisor before investing.)