Crude sees eventful week on Saudi production cut; go long on any breakout above 6100

It was an eventful and volatile week for crude. It all started on Sunday with OPEC+ producers deciding to keep the current cuts until the end of 2024 while Saudi Arabia gave lollipop to the bulls by voluntarily reducing its production by 1 million bpd in July, to around 9 million bpd for a month. The aim behind this was to weed out the short position bears and trap them. Right now there are 148 million short positions which has increased by 140% compared to the previous month. 

Before Sunday, Saudi Arabia said that they will “ouch” the short sellers, and they did just that but their action failed to move any sellers. After a jump of $2, crude oil fell again. It is a war by Saudi Arabia against Russia, where OPEC has said that there is no transparency regarding production data from Russia and Russia is failing to live up to its promise of cutting production. Right now the data is compiled by the shipping from Russia to China and India as Russia has stopped giving its official production number.

Yesterday we saw some jump in price as there were rumors of a US-Iran deal but news was confirmed that there is no deal and sanctions on Iran remains on export. It appears that traders have focused entirely on those economic index readings instead of the fact that Chinese crude oil demand hit a record in April despite refineries shutting down for seasonal maintenance. 

Market is not looking at supply as Saudi Arabia’s voluntary cut has failed to move the needle nor anybody is listening to pundits saying there will be supply tightness during the second half of the year. Institutional oil traders have been focusing almost exclusively on consumption lately. Over the past six weeks, institutional traders have reduced their positions in crude oil and fuels by 238 million barrels according to Reuter’s John Kemp report earlier this week, which was one of the lowest weekly positions in those contracts since 2013. Perhaps this has something to do with news about a recession in the U.S. manufacturing and freight transport sectors, which has hurt oil consumption in these industries.

Crude Oil – Technical Levels

In MCX, crude oil is stuck between the range of 5700-6100. Any upside breakout is only possible above 6100 while support emerges around the zone of 5700 and 5550. It is difficult to advise any trade when there is range bound movement with no clear trend. This week we saw see-saw movement in crude with one day positive while next day negative and so forth. So we would advise to refrain from taking any position while crude is stuck between the said range. 

Any breakout above 6100 would be ideal to go long with stoploss of 6000 and expected target of 6280 while on the downside, value buying may emerge around the level of 5550. Since past three-months, we have seen crude bouncing from the range of 5550 so that is an important and ideal level to go long in case there is any correction.

(Bhavik Patel, Commodities and Currencies Analyst, Tradebulls Securities. Views expressed are author’s own. Please consult your financial advisor before investing.)