Crude oil fundamentals remain bullish, MCX crude May futures likely to take support at Rs 8,150 per barrel

Crude oil fundamentals remain bullish, MCX crude May futures likely to take support at Rs 8,150 per barrel

By Jigar Trivedi

Crude oil gained for the fifth consecutive month, with WTI crude futures surging almost 4.5 percent in April, as expectations of EU ban on Russian oil trumped demand concerns from top consumer China. Sentiments turned positive after German representatives to the EU institutions reportedly lifted the country’s objection to a full Russian oil embargo provided Berlin was given sufficient time to secure alternative supplies, as it struck a deal with Poland that will enable imports of oil from global exporters via the Baltic Sea port of Gdansk.

Crude oil outlook

WTI Crude oil futures have rallied almost 5 percent so far in May after the EU proposed a ban on Russian oil and OPEC+ output fell short of targets. Going forward, we expect oil prices to stay buoyed amid the onset of US summer driving season prompting refiners to ramp up production. Increasing tightness in finished fuels are providing strong underlying support for crude oil. The war has entered its third month despite diplomatic efforts for a cease-fire, and the European Union appears to be making gradual progress toward a ban on Russia crude imports. Russian output has been falling since the beginning of war and is now almost 1 million barrel down from March production.

In the event of an EU ban, we might see further production cuts going forward. Meanwhile, the Biden Administration announced plans to buy crude to refill strategic reserves, widely seen as a signal to US drillers that there will be a market for more supply in future, even if demand slumps. Though the fundamentals remain bullish, covid led lockdowns in China coupled with slowdown in global economic forecasts might continue to weigh on prices in the near term. Sentiments have been further hit after Aramco reduced benchmark prices for Asian buyers. We expect MCX crude May futures to take support at Rs.8,150/barrel and rise towards Rs.8,600/barrel for the month of May.

Jigar Trivedi, Manager — Non-Agro Fundamental Research, Anand Rathi Shares & Stock Brokers