MCX crude oil outlook: Prices to test Rs 7700/bbl; take long position in Nov future with SL of Rs 7020/bbl

Last week’s decision by OPEC+ to cut its production by 2 million bpd have lifted crude prices from its slump and is now looking poised to surpass $100. When the cartel said it would be cutting production, OPEC officials explained the reasons for the decision had to do with anticipating a drop in demand and saving spare production capacity for the eventuality of a sudden output outage such as one in Russia following the EU embargo entering into effect at the end of the year. Meanwhile, the rally had run out of steam and once again focus came back on recession fears but we believe in the medium term, the only way the price will go is up.

With mid-term election coming in the US, Biden wants to lower oil prices and the White House committed to selling crude oil through its strategic petroleum reserve till November but U.S. inventories have shed 480 million barrels in the past two years, to reach the lowest level for this time of the year since 2004. They have to replace the oil they sold and they cannot just sell to keep price lower. This week with higher-than-expected US inventory, price did not fall and had reversed indicating that selling pressure is waning. So here are some of the reasons why we are bullish in crude oil.