Crude Oil - Weekly Wrap - Sep 25, 2021 - Reliance Securities

Mr. Sriram Iyer, Senior Research Analyst at Reliance Securities

International and domestic oil is on the way for a 3rd straight weekly gain.

NYMEX Gasoline and heating oil futures could also eke small gains for the week, tracking gains in the crude oil prices.

Initially, prices started the week lower as investors grew more risk averse and weak demand forecasts.

The TASS news agency said Russia believes global oil demand may not recover to its 2019 peak before the pandemic.

However, after the initial weakness prices rallied as the OPEC+ struggled to pump enough oil in August to meet current consumption as the world recovers from the coronavirus pandemic.

Reuters reported that compliance with oil production cuts rose to 116% in August. The figure compares with 109% in July.

Several countries like Angola, Nigeria and Kazakhstan appeared to have produced less than expected as part of the OPEC+ agreement suggesting a supply gap could grow.

Data from the U.S. Energy Information Administration showed that U.S. crude inventories last week fell by 3.5 million barrels to 414 million barrels, the lowest since October 2018.

Distillate stockpiles which include diesel and heating oil, fell by 2.6 million barrels versus expectations for a 1.2 million-barrel drop, however, U.S. gasoline stocks rose by 3.5 million barrels to 221.6 million barrels, and kept upside capped.

Overall product supplied jumped as a result to 21.1 million bpd, and for the past four weeks, product supplied - a proxy for demand - averaged nearly 21 million bpd, roughly in line with pre-pandemic levels.

Market sentiment is also being supported by surging natural gas prices as a supply shortage of gas may see power utilities shift to oil from gas if U.S faced a cold winter this year.

OUTLOOK

Looking ahead, prices could witness an initial correction as markets remain overbought and some profit taking cannot be ruled out.

However, growing fuel demand, a draw in U.S. crude inventories and as production remained hampered in the Gulf of Mexico will cap downside.

So, any downside will be met with fresh buying next week.

Inventory data next week could be keenly awaited, and another draw will lend support.

Technically, WTI major support is $70.05 and only a sustained below will pull lower. Otherwise we could see markets test initially $75.70 and further up of $77.10 levels.

Domestically, major hurdle for MCX October crude contract on MCX is at 5500 and a trade above the hurdle will push prices to 5740 levels. If prices are unable to breach 5500, then we could the markets re-test 5175, which remains a major support.

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Source : Equity Bulls

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