Concerns over supply encourage oil bulls

As supply remains constrained and demand worries continue to exceed them, crude oil prices are rising. The MCX crude oil futures (continuous contract) and the Intercontinental Exchange (ICE) Brent crude futures both saw gains last week, closing at $98.62 and 7,556 per barrel, respectively. The risks are inclined to the upside. With the G7 agreeing on a fixed oil price-capping mechanism, the U.S. sending out its final shipment of nearly 200 million barrels of oil from the Strategic Petroleum Reserves (SPR) release announced in March, sanctions against Russia taking effect on December 5, and the production cut by OPEC, the conditions are coming together perfectly for a rally.

Additionally, according to the most recent statistics from the Energy Information Administration (EIA), the U.S.’s crude oil stocks decreased by 3.1 million barrels for the week ended October 28 as opposed to an increase of 80,000 barrels that was anticipated. These elements work in favour of the price of crude oil and, in general, there is a good chance that prices will rise from this point. Considering that the price movement over the last two months suggests a base formation, the charts are also indicating a rebound.

The Brent futures have now rallied into the resistance band of $98-100. Since this is a strong barrier, there is a chance for the contract to see a dip to $95. But after that, we anticipate a rally past $100 and a touch of $105 or even $110 at some point. The daily chart, which supports this, exhibits the development of a higher foundation. The rise continued last week thanks to crude oil futures for November on the MCX. Before ending the week slightly lower at 7,556, it reached a high of 7,592. The hurdle at 7,600, meanwhile, should cause traders to exercise caution. We cannot rule out the chance that the contract would see a corrective loss of 7,600 before breaking out of the same trend, even if it continues to be bullish.

There appears to be a lot of money flowing in, and traders probably expect more rallies. On Friday, the MCX had 8,675 contracts worth of total open interest in crude oil futures, up from 4,571 contracts a week earlier. As of October 21, it had 3,926 contracts. This demonstrates that a significant buildup during the previous few weeks had taken place. This might lead to a quick rally to 8,000 if the contract breaks out of the 7,600 level. However, if a corrective move occurs, the price may fall, most likely to $7,200, before rising over $7,600. Lower declines than 7,000 are less likely.

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