Crude oil, a vital natural resource, finds numerous applications across various sectors of the global economy. It serves as a crucial raw material for the production of various fuels, including gasoline, diesel, and jet fuel, powering transportation systems worldwide.
Additionally, crude oil is a key ingredient in the manufacturing of lubricants, which are essential for the smooth operation of machinery and engines. The petrochemical industry heavily relies on crude oil as a feedstock to produce plastics, synthetic fibres, rubber, fertilizers, and other chemical products.
Moreover, crude oil plays a significant role in generating electricity through the operation of power plants that utilize oil-fired turbines. The construction industry also utilizes crude oil derivatives for asphalt production, used in road surfacing and roofing materials.
Furthermore, crude oil serves as a vital source of heat and energy for residential and commercial purposes. Its versatile applications across industries highlight the fundamental importance of crude oil in powering economies and supporting various aspects of modern life.
Following Saudi Arabia’s warning to short sellers, it appears that they are feeling the pressure. Short sellers have significantly increased their short positions, with this week seeing a rise of 140% to 148 million contracts, driven by concerns over a potential recession.
However, as the OPEC+ meeting approaches, crude oil prices experienced a recovery from 5590 to 5950, causing unease among shorters. Speculation surrounding the group’s discussions on further production cuts, with rumours of an additional 1 million barrels per day being considered, added to the market volatility.
The OPEC+ meeting, scheduled for June 4, has generated mixed signals. While the Russian Deputy Minister stated that no production cuts are on the table, Saudi Arabia’s stance suggests that the topic might be discussed, as they aim to maintain prices above $78 to address their fiscal deficit.
The primary reason for OPEC+ to potentially implement additional oil output cuts is the necessity for Saudi Arabia and other OPEC countries to rely on higher oil prices for their economic stability and growth. Initially, Reuters indicated that the OPEC+ group was unlikely to deepen production targets during the upcoming meeting. However, later reports suggested that an additional output cut of around 1 million barrels was under consideration among various options.
Despite the relief brought by successful debt ceiling negotiations, the future of crude oil demand remains uncertain. Increased imports and a decline in strategic reserves contributed to a rise in US inventory this week. Market participants are closely monitoring the developments in US summer demand and China’s cyclical recovery.
From a technical perspective, crude oil in MCX has formed a double bottom around 5545. The price was also nearing the oversold region, presenting a favourable opportunity for long positions. Historically, crude oil has experienced rebounds and gained a minimum of 6 to 8% whenever it approached the oversold region.
With the OPEC+ meeting taking place on June 4, the market could witness a gap-up or gap-down opening for crude oil. It is advisable to allow some market noise to subside and let crude oil settle on Monday before considering fresh positions on Tuesday.
If the price approaches the oversold region of 5600-5550 once again, it could be a suitable entry point for long positions, with a stop loss at 5400 and a target of 6000. However, if prices open higher, it is recommended to wait for a 2-3% correction before considering any position adjustments.
