Crude oil got shot in the arm boost after US braces for winter storm. Previously bulls took charge after China relaxed its covid policy. Cold weather is expected in the United States, with a storm forecast to bring more than a foot of snow and potential blizzards. In addition to the weather forecast, the latest weekly petroleum report of the U.S. Energy Information Administration also contributed to the oil price rise, by revealing a larger-than-expected inventory draw. Because of chill, demand for crude is also expected to increase for use in heating. If China gets over covid, demand for crude will increase further but demand from China is only expected after first quarter of 2023 as by then Chinese people will start developing herd immunity.

According to reports from OPEC and IEA, crude oil demand is also expected to increase in 2023 compared to 2022. Another reason for crude to see high prices would be reduction in output from Russia. Exports of Russia’s flagship Urals crude blend from the Baltic Sea ports will probably fall to around 5 million tonnes this month from 6 million tonnes in November, thanks to an EU embargo on Russian oil and a Western price cap, according to Reuters calculations. Russia is right now struggling to find enough suitable vessels to redirect Urals to China and India. Only China, India, Bulgaria and Turkey are currently willing to buy Urals with the blend now being sold to export markets at below overall production cost including local levies.
We also believe the era of cheap oil will come to end. Global oil inventory is at the lowest level since 2004. US will start replenish their stock for strategic petroleum reserve in February. OPEC continues to struggle to produce at their stated quota and US producers are helping but can only do so much.

The rally in MCX Crude Jan contract from 5832 till 6430 was on back of opening of Chinese economy from covid and now the current rally from 6071 till 6627 was on back of winter storm to be expected in US. We laid out fundamental factors which do point to higher price in crude for 2023 unless there is another black swan event like deep recession in US or resurgence of Covid. RSI_14 is at 52 and historically whenever prices are above 52, then we have seen rally of further 6 to 10%. Crude needs to close above 6620 which is 50-day moving average to re-confirm fresh upside rally as last time crude closed above 50-day moving average was in first week of Oct. Crude also is making inverse head and shoulder pattern with breakout above 6620. So it is prudent for crude to breach level of 6620 for further rally till 6900. We would recommend investors to wait for breakout above 6620 for expected target of 6900 and stoploss of 6400. Next week with holiday season, we don’t anticipate big movement unless weather turns for worse in US and Europe.