Crude oil witnessed its first weekly loss in May amid broad selloff in commodities, weak demand outlook in Asia and progress over US-Iran nuclear talk. However, oil prices regained some of the losses on Friday tracking rally in equity indices and improving virus situation in Europe and the United States.
Crude oil tumbled Rs 127, or 2.65 percent, during the week and fell during three out of five trading sessions on the domestic bourse.
Oil prices fell after diplomats said progress was made toward a deal to lift U.S. sanctions on Iran, which could boost crude supply.
The number of rigs drilling crude oil in the US soared by 4 to 356 for the week to May 21, the highest since April 2020, said Baker Hughes in a weekly report.
The CFTC data showed that money managers decreased their net long positions by 12,399 lots in the last week.
The 'black gold' has been trading higher than 50, 100 and 200 days' moving averages but lower than the 5 and 20 days’ moving averages on the daily chart. The momentum indicator Relative Strength Index (RSI) is at 48.13, indicating neutral movement in prices.
Tapan Patel, Senior Analyst (Commodities), HDFC Securities said, “Crude oil prices witnessed selling during the week with progress over Iran nuclear talks. The traders and investors reacted to a possible nuclear deal which may result in the removal of US sanctions on Iran. Crude oil prices have factored the rise in the supply of around 2 mb per day from Iran. The higher inflation concerns from the US, China and Europe added pressure to oil prices despite the weaker dollar.”
“Crude oil demand outlook was mixed with rising virus cases in other Asian countries apart from India. Market players are also watching tropical storm activity in the Gulf of Mexico. Any major storm formation may boost oil prices on supply disruption fears,” Patel noted.
Kshitij Purohit, Product Manager, Currency & Commodities, CapitalVia Global Research Limited said, “The crude oil markets have bounced significantly on the last trading day of the week after initially dropping, I think with the massive reopening of the Asian economy the demand will increase however if US- Iran deal will be the wildcard as there will be an increase in the supply of 2 million barrels a day if sanction lift from Iran. Demand for Gasoline is supporting the raw crude prices so we are keeping bullish sentiment intact after the weekly closing.”
Fundamentals
Iranian President Hassan Rouhani said that sanctions on oil, shipping, petrochemicals, insurance and the central bank had been dealt with in the talks. Iran has said previously that it could return within months to its peak oil production of nearly 4 million barrels a day once the sanctions on its oil are lifted. Iran roughly produces 2 million barrels a day.
Concerns about the demand outlook in Asia also weighed on prices. Weekly data from the Energy Information Administration showed an increase in US crude inventories and weighed on prices.
The EIA reported that U.S. crude inventories rose by 1.3 million barrels for the week ended May 14. That followed declines in each of the previous two weeks.
The US Energy Information Administration (EIA) said that gasoline consumption in the US will average almost 9 million barrels per day (bpd) this summer, between April and September, which is 1.2 million bpd.
The International Energy Agency (IEA) in a report said that to reach net-zero carbon emission, no fresh investment should be made in new oil, gas and coal projects.
Crude oil delivery for June surged by Rs 112, or 2.46 percent, to end at Rs 4,662 per barrel with a business turnover of 4,450 lots. The same for July delivery climbed by Rs 106, or 2.32 percent to Rs 4,676 per barrel with a business volume of 340 lots.
The value of June and July’s contracts traded on Friday was Rs 4,275.36 crore and Rs 52.11 crore, respectively.
West Texas Intermediate crude gained 2.65 percent to settle at $63.58 per barrel, while Brent crude, the London-based international benchmark jumped 2.04 percent to $66.44 per barrel.
Outlook
Sriram Iyer Senior Research Analyst at Reliance Securities said, "Prices could witness some additional correction next week on demand outlook in Asia and a possible increase in output from Iran. However, the above factors could be offset signs of a demand recovery in the U.S. and Europe. So, we could witness another range-bound week for crude in the coming week", Iyer added.
Markets will also look to cues to the availability of gasoline next. US Southeast region was without fuel last week and another week of unavailability could lend support to gasoline prices, in turn keeping bullish sentiments intact for raw crude.
Technicals and Strategy for Next week
“On the charts, WTI Crude Oil is holding support of 21-Weeks Moving Average which is placed at $59.60 level from where it could bounce back up to $65.00-$67.99 levels. Domestically, MCX Crude Oil June could bounce back from a support of 21-Weeks Moving Average at Rs 4,380 level indicating sideways momentum in the coming week. Support is at Rs 4,490-4,380. Resistance is at Rs 4,670-4,830 levels,” Iyer added.
Reliance Securities advised its clients to sell on rise Crude Oil June near Rs 4,680-4,690 with a stop loss at Rs 4750 and a target at Rs 4450.
Patel expects crude oil prices to trade sideways to down with resistance at $67 per barrel with support at $60 per barrel. MCX Crude oil June contract has important support at Rs 4,470 and resistance at Rs 4,850 per barrel.For all commodities-related news, click here
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