Crude caught in downward spiral; US output, Opec sober up mood

By Manoj Kumar Jain

Crude oil prices are hovering at almost a 2-month low, hurt by increased US output and OPEC’s signal to raise supply.

The US production reached a record level of 10.47 million barrel per day (mbpd) in March. Only Russia is ahead, which is producing 11 mbpd.

There are many key events lined up for this month. First, the Group of Seven (G7) meeting is kicking off in Canada this week.

Second, the historic summit meet between US President Donald Trump and his North Korean counterpart Kim Jong Un is on track. All eyes are on June 12, which will see Singapore hosting the much-publicised event.

Third, OPEC countries are slated to meet in Vienna on June 22 to discuss increasing oil output.

Meanwhile, US drillers are digging in more. General Electric Co’s Baker Hughes energy services firm said on Friday that US drillers added two oil rigs last week, bringing the total number to 861 — a record since March 2015. This is also the eighth time they added rigs in the past nine weeks.

In response to US sanctions against Iran and a fall in oil output in Venezuela, OPEC and a few non-OPEC producers are set to meet in Vienna to review their commitment to curb their output by about 1.8 million barrels per day until the end of this year.

Considering the current fundamentals and supply dynamics, crude oil prices remain under strain and could test their support level of $ 63.50-64 again.

Technical chart of crude oil

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(Source: Investing.com)

Technical view
WTI crude oil is unable to sustain above its resistance level of $ 70 and formed a reverse hammer pattern on the monthly chart. Crude oil is in a free fall and down almost 11% from the high.

Looking to the technical chart, crude oil is witnessing major support around $ 63.80-63 and resistance at $ 66-66.50.

On MCX, crude oil fell more than 11% from the top of Rs 4,977 per barrel. It’s having major support around Rs 4,370-4,350 and any close below this level could bring it down to Rs 4,250.

It will show strength only if it closes and sustains above Rs 4,500 per barrel. It can sustain above Rs 4,500 and further rally till Rs 4,580-4,630, but chances are remote.

Our expectations are traders could sell crude oil on the rise in price zone of Rs 4,450-4,480 with strict stop loss at Rs 4,560 on closing basis for the downside target of Rs 4,350-4,260.

Recommendation
Sell crude oil in the range of Rs 4,450-4,480 | Stop loss Rs 4,560 (closing basis) | Target Rs 4,350-4,260.

(Manoj Kumar Jain is Director of Commodity and Currency at IndiaNivesh Commodities. He has 20 years of experience in financial service sector. Readers are advised to consult their financial advisers before taking any position based on these observations.)