NYMEX crude oil surged 2.3 per cent last week, testing its highest level since March 15, supported by the US inventory report, optimism about the US economy and lack of surprise from the Organization of the Petroleum Exporting Countries (OPEC).
The US inventory report showed a smaller-than-expected rise in US crude oil and gasoline stocks, and a sharp drop in distillate stocks, while US crude production eased marginally.
Optimism about the economy was backed by upbeat GDP data, Fed’s upbeat outlook and US President Joe Biden’s announcements on additional stimulus measures.
While the OPEC plus ministerial meeting slated for April 28 was cancelled, the OPEC’s technical committee announced that production policy remains unchanged from what was decided on April 1, including the gradual increase in supplies in the coming three months as with demand expected to improve.
Crude oil prices, however, remained challenged by demand concerns amid rising coronavirus cases and mixed economic data from major economies.
Rising virus cases, especially in key consuming states like India, have forced authorities to impose stricter restrictions. Also weighing on the price was the prospect of higher supply from Iran as diplomats from the US and Iran work to salvage the 2015 nuclear deal. Also weighing on the rate is higher OPEC output.
According to the findings of a Reuters survey, OPEC’s production rose by 1,00,000 barrels per day month over month to 25.17 million bpd in April owing to higher Iranian output.
Crude oil may remain volatile amid both positive and negative factors, however, selling pressure is expected at higher levels due to persisting concerns on the Covid-19 front and the prospect of higher OPEC supply.
On the technical front, MCX crude oil May futures continued their sideways move as the bulls failed to keep them above the resistance of Rs 4,840, which has become a triple top resistance.
The broader picture still looks bearish as the bulls have failed to push the price above the rising trend line resistance that was penetrated a few weeks ago.
The triple top resistance would be a major hurdle for the bulls this week. If they succeed in taking the price above that on a closing basis, the price would once again enter a bullish zone as indicated by the bullish cup and handle.
Till then, the sideways to weak bias might continue.
Immediate support is seen near Rs 4,680 and strong support near Rs 4,520, the handle support of the cup and handle formation.
A close below Rs 4,520 might give bears an edge in taking the price once again towards Rs 4,280.
Going by the above analysis, we expect price to stay sideways with a negative bias. A break on either side of Rs 4,860 and Rs 4,520 might give some direction to the price.
(Ravindra Rao, CMT, EPAT, is VP-Head Commodity Research at Kotak Securities. Views are his own)