Oil futures prices traded mostly in a range bound in the last week. However, on weekly basis, WTI Oil futures for March delivery have closed with gain of more than 1.2 percent in NYMEX platform. On the other side, MCX traded oil futures prices have fallen by more than 0.70 percent.
This deviation is might be due to continuous appreciation in Indian rupee. Basically, it is the Iran threat; falling distillates level and Euro debt talk which supported oil prices to trade on higher side. However, gain was limited by increasing crude oil inventory levels. The last week have started with acceptance of EU sanction on Iranian oil import.
European members have agreed on sanction of Iranian oil import. Thus, oil futures prices took positive cues on supply concern in Strait of Hormuz. However, pressurized Euro made oil prices to trade under pressure. S&P have cut the credit ratings of two major banks Society General, and Credit Agricole from A+ to A. Thus Euro therefore fell and thereby pressurizing the oil prices. Greek debt swap deal also prevailed in the market, making Euro to remain volatile.
On the other side, in the FOMC meet Fed have declared to keep the interest rate at lower level for next two years. Despite Republican opposition, the Senate on Thursday voted to allow President Barack Obama to increase the debt ceiling by $1.2 trillion, an amount large enough to ensure the federal government can pay its bills through the November elections.
Dollar became cheaper and oil prices traded above $101/bbl. On fundamental front, as per US energy department crude oil inventory have increased whereas fall in distillates stocks was witnessed. So, oil prices took positive cues from distillates stocks, as reported by US energy department.
From economic front, most of the economic releases from Euro-zone and US were mostly positive. The acceleration in US GDP growth to 2.8% annualized in Q4, from 1.8%, suggests that the recovery is gathering momentum.
Overall, world equity market continues the rally and MXWO index climbed up by more than one percent. Asian equities have performed better than Euro-zone and US equity market. Indian rupee continued to appreciate against US dollar. In the last week, Indian rupee has appreciated by more than 2 percent at 49.31 levels.
OUTLOOK:
In the coming week, we are expecting oil future prices to trade on a positive trend. However, some pressure can be seen initially. Euro is expected to remain under pressure in beginning of the week due to lower credit rating.
On last Friday, Fitch as Fitch have downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain, indicating there was a 50% chance of further cuts in the next two years. Thus, negative impact can be seen on Euro, which will ultimately pressurize oil prices. However, positive economic data expectation and optimism on Greek debt talk may limit the fall in Euro. So, fall in oil prices is also expected to be limited.
Fundamentally, winter demand is still prevailing in the US. Distillates stocks have already fallen by more than 20 percent in this winter season, compared to 2010-11 winter season. As per US weather channel, temperature is expected to remain cool in lower 48-states in coming week.
Thus, cooling temperature may create demand for heating oil and support crude oil prices to trade on higher side. Shut down in refineries may create supply concern of petroleum products and lead oil to take positive cues. ConocoPhillips planned to shut the fluid catalytic cracker at its Bayway refinery in New Jersey.
Two refineries in Pennsylvania have shut down, one owned by Sunoco Inc. and one owned by ConocoPhillips. Hovensa LLC plans to shut its 350,000-barrel-a-day St. Croix plant in the U.S. Virgin Islands next month. Of course, any news from Iran regarding blockage of strait of Hormuz may take oil prices on higher side.
On economic front, most of the US economic releases from US are expected to mostly positive for the economy, which may support oil prices to take positive cues. Manufacturing activities are expected to increase which may lead for higher income and spending by US consumers. Slow growth in payrolls may keep unemployment rate unchanged at 8.5 percent. Similarly, German unemployment is also expected to remain at 6.8 percent.
On the other side, contraction in China manufacturing may be seen in January, which may pressurize oil prices. Overall, we may expect oil price to continue the bullish trend on weekly basis. Actual DOE data must eye on Wednesday night.
TECHNICAL ANAYSIS
The week gone by has been very sideways and trading in a limited range however, still holding below crucial resistance at $103.60 levels which is the recent high. Finally oil prices settled at $99.50 up by 1.25 per cent from its previous close.
Any sustainable trade above the same might resume previous short-term bullish trend, this move may continue higher side up to $106.30 then 109.60 levels which are Fibonacci projection of 50.% and 61.8% of the range $76.10-$103.40-$92.60 respectively. But still prices are trading below the rising trend line resistance level ($101.40), this might act as an initial resistance.
Lower side prices are witnessing medium-term moving averages support at $96.20 level. Principle of Fibonacci retracement states that prices are witnessing short term crucial support at $93.40 levels. Any sustainable trade below might confirms major fall.
Momentum indicator RSI-14 is supporting prices to trade towards lower side by treading near to over brought zone (0.550).Going by the above technical study expecting prices to trade lower side and recommended to sell at higher levels. However, as discussed above if $103.60 is breached convincingly then scenario should reverse.
Courtesy: Karvy Commtrade Ltd.
