By Ravindra Rao
NYMEX crude oil prices rose for four out of five trading sessions last week and yet logged a modest weekly gain of 0.7 per cent. Crude oil rates topped the $66 per barrel mark in the beginning of the week amid supply concerns relating to the US, as a major pipeline servicing the East Coast closed operations following a cyber attack.
Providing further support to price were expectations of a decline in US oil stocks and the forecast by the International Energy Agency, which lowered its 2021 demand growth projection owing to slack demand in Q1. It, however, warned that the global market is undersupplied and may tighten further in the coming months.
Oil, however, lost momentum after a mixed inventory report that highlighted a smaller-than-expected decline in crude stockpiles and an unexpected rise in gasoline. From there, it weakened as supply concerns in the US eased with the Colonial Pipeline resuming operations.
On Friday, crude recovered along with other commodities as disappointing US economic data put pressure on the greenback.
Therefore, just like the trend seen in the past few weeks, crude oil started the week on a positive note but failed to hold on to the gains but still managed to end the week on a positive note.
Crude oil remains supported by a general improvement in demand expectations. However, mixed economic data from major economies and persisting coronavirus concerns in India have kept a check on prices.
Adding to the pressure on commodities at large are concerns that China may take measures to cool down prices.
Crude oil may remain volatile amid lack of clear cues. However, selling pressure can be expected to emerge at higher levels owing to the debate on inflation and the persisting Covid-19 risks.
Technically, since mid-April, crude oil prices are trading in a channel with higher highs and higher lows, indicating the base trend is bullish. However, the contracting Bollinger Bands (BB) are suggesting a narrow range.
Immediate resistance is seen at Rs 4,940 per barrel and support at Rs 4,550 – the range within which the price is moving.
We expect crude oil to trade in the range of Rs 4,940-4,550 with a sideways bias. A breakout on either side will provide direction to the price.
(Ravindra Rao, CMT, EPAT, is VP-Head Commodity Research at Kotak Securities)