Crude to trade sideways as Saudi Arabia raises prices; wait for range-bound activity to end before commencing medium positions

Crude to trade sideways as Saudi Arabia raises prices; wait for range-bound activity to end before commencing medium positions

By Bhavik Pate

The rally in Crude from WTI $72 to $77 has been stalled on back of rising US and EU inventories. The rally happened as China opened its borders and IEA as well as OPEC+ in January report stated that global oil demand was set to rise by 1.9 million barrels per day (bpd) in 2023, to a record 101.7 million bpd, with nearly half the gain coming from China following the lifting of its Covid restrictions. Prices also rose on supply concerns after an earthquake shuttered a major export terminal in Turkey and a field in the North Sea shut unexpectedly.

So this upcoming week, we could see prices drifting sideways but overall trend seems to be on the higher side. The reason is fundamental as on Monday, Saudi Arabia raised the official selling price of its flagship crude going to Asia in March. The hike, which was the first in six months, was due to expectations of a rebound in Chinese demand despite oil price falling. The hike was 20 cent while market was anticipating cut of 30 cent. This clearly shows that Saudi Arabia is bullish as going forward OPEC+ is not going to hike any production. From 5th Feb, Europe has placed oil embargo to sea borne crude from Russia which will also have effect on supply side. It will mean that the well-supplied oil balance at the start of 2023 could quickly tighten as western sanctions impact Russian exports. So despite short term correction, crude oil is not expected to linger at lower levels.

In MCX, crude is stuck between double top and double bottom formation. Double top is near 6750 levels while double bottom is at 6000 levels. No clear direction is evident at the moment since crude is stuck in range. We would recommend traders to opt for trade whenever crude comes near its upper or lower range meaning any buy can be commenced near 6050 levels or sell can be commenced near 6700 levels. We would wait for crude to break the range before recommending any medium term trade.

(By Bhavik Patel, Commodity and Currency Analyst, Tradebulls Securities. Views expressed are of the author and do not represent the policies or opinions of FinancialExpress.com)