MCX crude oil outlook: Prices to test Rs 7700/bbl; take long position in Nov future with SL of Rs 7020/bbl

By Bhavik Patel

Last week’s decision by OPEC+ to cut its production by 2 million bpd have lifted crude prices from its slump and is now looking poised to surpass $100. When the cartel said it would be cutting production, OPEC officials explained the reasons for the decision had to do with anticipating a drop in demand and saving spare production capacity for the eventuality of a sudden output outage such as one in Russia following the EU embargo entering into effect at the end of the year. Meanwhile, the rally had run out of steam and once again focus came back on recession fears but we believe in the medium term, the only way the price will go is up.

The distillate market is going to be very tight in the winter and refining margins are increasing. This will push oil price higher. Europe will stop buying Russian sea-bound oil from December and US Strategic Petroleum Reserve release will end at the end of November. So there will be a shortage of crude as there aren’t many buyers for crude from Russia and Europe has to replace their oil from Russia with other countries.

In MCX, the trend is bullish and we are near the cusp of buy signal crossover of 20 and 50-day moving averages. Last time when we got sell signal of cross below of 20 and 50-day moving averages was when the price was 8125 and from there, the price fell to 6292. Channel line breakout has already been established on the daily chart and we expect the price to test 7700. The recent swing low of 7020 in MCX Nov Future seems to be strong support and we would recommend taking long position in MCX Nov Future with a stop loss of 7020 and an expected target of 7600.

(Bhavik Patel is a commodity and currency analyst at Tradebulls Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)