By Bhavik Patel
Crude oil is stuck between bullish and bearish fundamentals. Fears of spillover in the conflict between Israel and Hamas have given considerable support to oil prices but weak PMI data from Eurozone suggest recession which gives way to weak demand and ultimately falling prices. The oil price rally has failed to gain any kind of momentum three weeks after tensions in the Middle East escalated despite market fundamentals strengthening which suggest that clearly traders are also keeping an eye on world economy’s growth. Barring the US and India, none of the major economies are showing any strength, be it China, Japan or Eurozone with Germany the biggest European economy entering recession.
There are signs of weakness in the physical oil market, suggesting these were about to spill into the futures market, pushing benchmark prices down. Driving season in the U.S. draws to a close, implying lower demand for gasoline and as crude-to-product spreads have declined. Margins are falling in the United States, too, which seems to be already affecting refiner’s production decisions. And that’s despite robust exports of crude and fuels this summer.
In MCX, 6800 seems to be immediate support and breach below that we could see selling pressure accumulating till 6600-6500. Clearly crude is stuck between 6800-7400 with no clear direction. We would only advise to go short below 6800 with expected target of 6600 and stoploss of 6900. Till crude is trading in range of 6800-7400, better to avoid taking any positional call.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)
