By Bhavik Patel
Crude oil had witnessed a correction amid a strong USD rally. Crude prices saw fall for six straight sessions before recovering somewhat on Thursday. Fundamentals have not changed much but last four week’s increase in US inventory have kept prices under pressure. At 479 million barrels, U.S. crude oil inventories are above the five-year average for this time of the year. One of the saving grace for crude, despite higher US inventories, was gasoline inventory decline. The gasoline inventory decline is driving oil prices upwards, with gasoline demand expected to strengthen as the US heads out of winter and into higher driving seasons.
Since Mid-December, crude oil has been stuck in the range of 6000-6700. Crude has made triple top (around 6750) and double bottom (around 6020) on the daily chart in MCX. Crude is trading at the lower end of the range and we believe once again it will try to climb near the higher end of the range. Price still is under the 20 and 50-day moving average with momentum oscillator RSI_14 around 46 suggesting the trend is bearish.
Short covering cannot be ruled out since we have seen crude bouncing from the lower end of the range. Upside also seems capped on the back of higher US inventory and US dollar strength. But from a risk/reward perspective going long is more favourable as crude is trading at the lower end of the range. One can go long around the current rate with stoploss of 6000 and expected target of 6500 in March contract MCX.
(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.)