By Bhavik Patel
Oil price continues to decline as hawkish commentary from Central banks around the world signals that growth is going to take a back seat and we might see more slowdown apparently as Central banks want to focus on bringing the inflation down at the cost of growth. During his second day of testimony before Congress, Powell remained fully committed to two more rate hikes this year after holding rates steady at the June meeting.
But all is not lost for crude bulls as there are plenty of silver linings. China’s oil demand is on the rise despite mixed economic data from China. China has given small stimulus to jump start its economy but we are not expecting any more stimulus as that will increase inflationary pressure. However, increasing oil demand is positive. In the US, demand has reached the highest since December while inventory reported decline for the second straight week. Rig count is decreasing which means less production for Shale industries.
The biggest factor which is positive for crude is the chart pattern and support zone. We have seen in mid-march that 5400-5300 is proving to be good support where from there it had bounced till 6800. Next in the start of May and June both times, crude came near 5550 and bounced back till 6200 and 6000 subsequently. So in essence, 5550-5400 is proving to be strong support for crude in MCX and although it has not come in oversold regions, price action certainly suggests we are close to bottom. We would advise to wait for correction till 5550-5500 and one can go long with stoploss of 5300 and target of 5900 positional.
(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)