MCX crude October futures: Go long on dips near Rs 7150-7100/bbl; trend looks bullish with target of Rs 7500

08 Oct , 2022 By : Monika Singh

Oil prices got a boost in the arm when OPEC decided to cut production by 2 million bpd, a figure that was larger than market had expected. Oil prices climbed on the news but the gains were limited as the market was waiting for US response. OPEC has been undershooting its own production for months so in reality, the market is only getting cut of 1 million bpd instead of 2 million as OPEC is behind 1 million bpd in their production. This suggests that the production cut agreed at this meeting would be more of an attempt to move targets closer to actual production than anything else.

The US has responded by stating that they will sell more oil from their strategic petroleum reserve and they want lower prices ahead of their midterm election. Many hedge funds have increased the target of Brent to around $105-110 in the final quarter of the year as despite recession fears, there will be a very limited surplus of oil in the market.

Oil prices have fallen to roughly $80 a barrel from more than $120 in early June amid growing fears about the prospect of a global economic recession. Now the price is near $94 and within knocking distance of $100 unless no major bouts of Covid globally occur or the US Federal Reserve does not become unexpectedly hawkish. A more likely scenario in the short term is that oil prices hover in the $90 to $100 range as the market digests economic data releases. The deficit on the oil market might swell to 900,000 bpd next year, up from the 200,000 bpd deficit previously expected with the OPEC decision. All the developments we have seen on the supply side at this point very much sets the stage for what we believe will be higher prices into the end of this year.

After July, for the first time crude prices have cleared the 20 and 50-day moving average suggesting change in trend. Now the trend is bullish from bearish and the next target is 7500 where the 200-day moving average is. Previously also we had recommended to go long only above 7150 in MCX crude October futures as that is where breakout was and this week, after breaking that resistance, crude has climbed nonstop to 7291. We recommend any dips near 7150-7100 to go long for expected target of 7380 and stoploss of 7000 closing basis.