View: Oil may continue to outshine commodities, MCX crude futures may test Rs 6,650

Last week, the International Energy Agency (IEA) that high natural gas prices will boost demand for crude oil. The agency revised its forecast for estimated demand growth for 2021 by 1,70,000 bpd, as the ongoing energy crisis could force the switch to oil products, with demand rising by 5,00,000 bpd compared to normal conditions. In 2022, oil demand is set to return to pre-COVID levels.

For Indian refiners, the crude oil throughput in September edged higher compared with the previous month, as refineries boosted the output to meet surging demand. Refiners processed 4.45 Mbpd of crude oil in September, up from the 4.36 Mbpd in the previous month, which was the lowest in 10 months. Refiners have been boosting throughput in order to meet demand during the festive season. Demand is expected to increase compared to the past few months as people travel more during festivals.

Russia has said it is ready to help stabilise global energy markets and remain a reliable supplier to its customers around the world. Forecasts suggest that consumption may increase by 5,00,000-6,00,000 Bpd if the Northern Hemisphere’s winter is colder than normal and as companies switch from gas to crude. It has also cautioned that more barrels from the OPEC+ grouping would do little to curb costs of gas in Europe and Asia, or gasoline in the US.

Oil prices saw some pressure after China, India and other consumers fought back against high energy rates, which they said could ruin their economies with runaway inflation. Adding to pressure in the energy market were forecasts showing much of the US will have a warmer-than-average winter.

On the supply-side, the US Energy Information Administration (EIA) commercial crude stocks rose by 2.35 million barrels, putting inventories at a four-week high, but still around seven percent behind the five-year average. Total motor gasoline inventories increased by 3.3 million barrels while distillate fuel inventories declined by a modest 0.4 million barrels on the week. The build came in above market expectations as the latest API data showed stockpiles were up by 9,51,000 barrels on the week. Meanwhile US energy firms last week cut oil and natural gas rigs for the first time in seven weeks even as oil prices rose.

Natural gas finished lower following a report by the EIA that showed a build of 92 Bcf compared with expectations of 91 Bcf. Stocks were 458 Bcf less than last year at this time and 151 Bcf below the five-year average of 3,612 Bcf. At 3,461 Bcf, total working gas is within the five-year historical range. Measured by the four-week average, the demand for gasoline is at the highest since 2007 for this time of year. Mild forecasts and a run of above-average storage builds have left the market waiting for a bullish catalyst, with the direr heating season scenarios now feeling more remote, at least in the near term.

For this week, crude oil could justifiably trade to higher levels on the storage drought at Cushing. Fuel switching will be an additional boost to prices in the coming weeks. MCX crude oil has been the best performer among the commodities and is likely to continue the trend in the near term. Major support is placed at Rs 5,700 whereas immediate support is at Rs 6,010. The 14-period RSI is in overbought zone, but is not indicating any trend reversal as of now, and MACD is also confirming price strength. The counter has the potential to test Rs 6,535-6,650 levels. So, buying on dips is advised.