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August
07
2021

Crude oil prices jump on rising Middle East tension; WTI reclaims $70/bbl-mark
Sandeep Sinha

The black gold has been trading higher than 5, 100 and 200 days' moving averages but lower than the 20 and 50 day’s moving averages on the daily chart.

Crude oil prices traded higher on August 6 and recouped some of the losses suffered earlier in the week on rising Middle East tensions but were on track for a weekly decline. However, the upside was capped as fresh restrictions were imposed by nations to curb the spread of Delta variant of coronavirus cases that threatened recovery in fuel demand. The energy commodity extended gains to trade at the day’s high after a gap-up start, tracking the firm global trend.

On the MCX, crude oil delivery for August rose Rs 71, or 1.39 percent, to Rs 5,193 per barrel at 16:23 hours IST with a business turnover of 5,905 lots. The delivery for September soared Rs 66, or 1.29 percent to Rs 5,182 per barrel with a business volume of 729 lots.

The value of August and September’s contracts traded so far is Rs 668.46 crore and Rs 22.45 crore, respectively.

West Texas Intermediate (WTI) crude jumped 1.32 percent to $70 per barrel, while Brent crude, the London-based international benchmark, gained 1.28 percent to $72.20 per barrel.

For the September crude WTI options, the most active Call and Put strikes near the ATM’s (at the money) are 69, 69.50, 70.50 and 71.50. The most active put strikes near the ATM’s are 69.

Prathamesh Mallya, AVP Research - Non-Agri Commodities and Currencies, Angel Broking Ltd said, “Crude Oil reversed some of its losses made earlier in the week as increasing tension from the Middle east overshadowed the recent hike in US Crude inventories and pushed the prices higher.”

“The last week's drone attacks have increased differences between Iran and the world powers decreasing the chances of a nuclear deal and waving off the sanctions from Iran which supported oil prices. Oil prices traded lower in the earlier sessions as sudden increasing US Crude inventories and rising cases of the Delta variant of the COVID-19 virus clouded the outlook for the global oil market,” he said.

The US Energy Information Administration (EIA) reported that US crude oil inventories rose by 3.6 million barrels per day against the expectation of 3.2 Mbpd drops for the week ended July 30. Gasoline stocks fell by 5.3 million barrels, the Department of Energy said, higher than expectations for a 1.8 million decline.

The rising Middle East tensions come as a nuclear talk between Iran and Western powers that would ease sanctions on Tehran’s oil exports appear to have stalled.

The world’s biggest oil consumer United States saw COVID-19 cases climbed to a six-month high with more than 100,000 infections reported on Wednesday, according to Reuters’ tally.

Technicals

The black gold has been trading higher than 5, 100 and 200 days' moving averages but lower than the 20 and 50 day’s moving averages on the daily chart. The momentum indicator Relative Strength Index (RSI) is at 45.28, which indicates weakness in the prices.

Trading Strategy

Tapan Patel- Senior Analyst (Commodities), HDFC Securities

Crude oil prices recovered from recent lows on heightened Middle East tensions. Israeli jets struck rocket launch sites in Lebanon on Thursday in response to two rockets fired towards Israel from Lebanese territory. The exchange came after an attack on a tanker off the coast of Oman last Thursday, which Israel blamed on Iran.

Crude oil prices are expected to trade sideways to higher for the day with resistance at $70 and support at $68 per barrel. MCX Crude oil August has support at Rs 5,080, resistance at Rs 5,230.