Crude oil on route to breach $50 level; traders should sell on rise
Brent August 2019 contract on ICE could remain in the range of $57-$64 this week.
Commodity Summary MCX
Crude oil prices rallied more than 4 per cent last week after two oil tankers were attacked in the Gulf of Oman. The attack came just a month after strikes on tankers in the United Arab Emirates and oil-pumping stations in Saudi Arabia.
From $59.97 per barrel on Wednesday, crude oil prices rose to $62.01 on Friday. However, despite the rise towards the end of the week, oil was 2 per cent down for the week. During this period, crude oil prices came down from $63.29 to end the week at $62.01.
The fall was on the back of weak oil demand outlook and rise in US crude inventories. Market even ignored growing expectations of ongoing Opec-led supply cuts. The oil prices for the last one month has been down from $72 on concerns over high inventories and global slowdown, especially due to trade tension between the US and China.
Meanwhile, last week began with crude prices being hammered due to larger than expected inventory build-up. Energy Information Administration (EIA) said US supplies rose by 2.21 million barrels in the week ending June 7 to take the overall supply tally to 485.47 million barrels, the highest in nearly two years.
Additionally, the EIA trimmed its forecast for world demand to around 1.22 million barrels per day (bpd). Adding to the bearish demand report, the EIA also projected that US production will increase by 1.4 million bpd in 2019 and by 0.9 million bpd in 2020, with 2020 production averaging at 13.3 million bpd.
Escalation in trade was fears continued to weigh on demand for oil. On the other hand, China's crude oil imports slipped to around 40.23 million tonnes in May, from an all-time high of 43.73 MT in April.
Hedge funds and other money managers cut their combined futures and options position in New York and London. Crude seemed to be well on its way to breach the all-important $50 mark.
Looking ahead, oil market will remain volatile for the next few weeks, ahead of the G-20 summit and the Opec meeting.
With the demand outlook looking weak in the face of continued growth pessimism and weak data emerging out of China, US and Europe, oil prices are not expected to go up in a hurry, unless we witness a spike in geopolitical tensions in the Middle East.
We continue to remain bearish on crude oil. Investors should sell crude oil futures on rise. This, Brent August 2019 contract on ICE could remain within the range from $57-$64. NYMEX July 2019 contract could remain $48-$54. On the MCX, crude May 2019 could trade in a range from Rs 3,350-3,750.
(Pritam Kumar Patnaik is Head of Commodities at Reliance Commodities. Please consult your financial adviser before taking any position in the commodities mentioned)