Crude Oil Prices to Swing Between $90-110

After falling from $116 to $95 per barrel, WTI has settled. Fears of Russian supply disruptions were temporarily put on the back burner by the coordinated inventory release by several countries and by extension of Covid lockdown in China. IEA is set to release 60 million barrels of strategic stocks above and beyond the US 180-million-barrel stock draw which helped in pushing the prices below $100 per barrel. Now European Union member states are not expected to formally discuss an embargo on Russian oil at their meeting after putting a ban on imports of coal and other solid fossil fuels from Russia as of August 2022 as part of the fifth round of EU sanctions against Russia over its invasion of Ukraine. 

We believe prices will swing between $90 to $110 as chances of upside are more than downside. Last week, the OPEC+ meeting concluded that no change in production plans was needed, and agreed to lift the group’s production by another 432,000 barrels per day starting in May. Saudi Arabia has raised its official selling price to all time high amid western nations ignoring Russian crude oil. Medium-term prices have hardly budged as near-term oil prices have fallen by over 20%, indicating a still-bullish longer-term outlook. Also OPEC does not have the spare capacity to lift crude oil production much more than it is doing. In February, the OPEC+ group continued to severely underperform in its oil production levels compared to the target in the pact, with February output at more than 1 million barrels per day (bpd) below the collective quota and compliance rate jumping to 136 percent according to Reuters report. In March, it was the same scenario.

However, bearish news for crude is tightening monetary policy. There might be a 50 basis point rate hike from the US which will create short term pressure in Crude oil prices. In MCX, crude has support at 7000 and 6600. After 31 Dec 2021, prices have fallen below the 20 and 50 day moving average which is bearish sign short term.  However prices above Rs 8000 per barrel will change the trend from bearish to bullish as it will then have crossed over 20 and 50 day moving average. Volatility is expected to remain high as prices are chasing headlines. In near term, prices are expected to test levels of 7000 and if it breaks below that level, then to 6700. On the upside, resistance is at 7700 followed by 8000. For this week, trend is neutral to negative and sell on rise is recommended till 7700 is not breached.