Weekly Outlook on Crude Oil - 9 Dec 2022

MCX crude oil prices dropped more than 9% in a week to trade at 5935 levels on Friday, tracking WTI oil prices which settled below $74 per barrel, the lowest since Dec.21. Prices fell for four straight sessions after a negative opening on Monday as U.S service industry data raised worries that the Federal Reserve could continue its aggressive policy tightening path.

U.S. crude production rose to 12.2 million barrels per day last week and reached its highest level since August, the Energy Information Administration said on Wednesday. While U.S. crude stocks fell last week, gasoline and distillate inventories surged, adding to concerns about easing demand.

                                                           Weekly outlook on Crude Oil

In the recent meeting on Sunday, OPEC and allies decided not to further cut production and keep with its existing policy of reducing oil output by 2 million barrels a day from November to 2023.

The price cap was imposed on Russian oil by G7 countries and Australia on Monday. The cap aims to both cut Russian revenue from the oil price spikes caused by its war on Ukraine, and ensure that Russian oil continues to flow to buyers including China & India, keeping global market prices under control. The treasury official added the $60 limit on Russian seaborne oil exports is to be reviewed every two months and also said that G7 countries and Australia would be busy in coming weeks to determine the two more price caps on Russian refined oil products.

Technically, WTI crude oil prices declined sharply to surpass support of $75 and reached its one year low at $71.14. However, prices rebounded slightly on Friday as closure of a major Canada to U.S. crude pipeline disrupted supplies, but headed for steep weekly losses. Overall, crude prices plunged more than 10% on a weekly basis to trade at 71.90 on Friday's first half of the session. The price slipped below 100-weeks SMA and tested the 50% Retracement Level of its prior up move from $10.07 to $130.50 that indicates immediate support zone around $70 levels. However, the price has also crashed below the Ichimoku Cloud formation, which suggests weakness in the counter for the long term. A daily momentum reading is near to the oversold zone that supports pullback moves in the price.

On the MCX front, crude oil prices dragged lower throughout the week from the weekly high of Rs. 6773. After breaking the support of 6200 levels, we witnessed a sharp correction in oil prices with a 9% weekly fall. Technically, the price has formed a Bearish Engulfing candlestick pattern on a weekly chart and also moved below the Lower Bollinger Band formation, which suggests a bearish move in the counter. Moreover, a momentum indicator, RSI, has been showing negative crossover and Super trend also indicating weakness in the prices for the near term.

Hence, based on the above technical structure, we are expecting limited downside moves for the coming week as prices are already trading near to the support zone. So traders are advised to look for a buy on dips strategy for the near term. On the downside, it may have support around 5700/5400 levels, while on the upside, it may find resistance around 6400/6800 levels.

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