Crude set to see price shift despite decline on weak global sentiment

By Bhavik Patel

Sentiment has shifted in Crude from positive to negative as we have seen decline in both WTI and Brent by almost $10. However, according to Saudi Arabia, it’s oil speculators that are behind the most recent drop in global crude oil prices and not fall in demand. This was the same rant that Saudi Arabia sang during the Apr month when crude was plunging on back of higher rates and expectation of soft demand. Saudi Arabia voluntarily cut its production by 1 million barrel per day since then and have kept the production cut till December.

Thus investors are not convinced of any increase in demand in the short term. Demand from China is weak as Russia’s ESPO crude blend has slipped to a discount to Brent for December loadings to China amid lower Chinese demand and higher freight costs. According to a Bloomberg report, lower refining margins, higher oil and fuel inventory levels, and a slower-than-expected increase in air travel have combined to push down oil demand in China. Analysts are expecting little change in the status quo in the coming months.

MCX Crude has some more room on the downside but we believe bottom is near as momentum oscillator RSI_14 is around 35 and historically we have seen prices bouncing from oversold region around 30. So we believe any correction around 6120 is ideal opportunity to go long with stoploss of 5900 and expected upside movement till 6400.

(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.)