Crude at 3-month high – Will it break the key resistance?

Crude oil witnessed a more than one and a half per cent speculative jump yesterday. Prices traded near three-month highs amid mixed cues from major importer China.  Strength in the dollar also weighed.

Since the start of the month, crude oil rallied nearly 15%,  amid tighter supply concerns in largely underpinning markets after production cuts by major suppliers Saudi Arabia and Russia.

Prices were also helped by indications of steady American demand and growing optimism for additional Chinese stimulus measures.

However, a recovery in the dollar against its major counterparts could have limited gains in commodities priced in the greenback.

Going ahead, the focus will shift to more stimulus measures from world no one crude importer China. While officials promised to roll out more measures to support Chinese consumers and businesses in the coming months, they offered scant details on what these measures will entail.

This occurred at the same time as statistics from the purchasing managers’ Index (PMI) revealed that manufacturing activity in China slowed for a fourth consecutive month in July and that other economic activity had declined as well.

We anticipate Saudi Arabia’s voluntary production cutbacks to be prolonged by another month, and the Organisation of Petroleum Exporting Countries (OPEC) meeting this Friday may serve as a catalyst for that expectation.

Saudi Arabia promised an additional voluntary cut for July as part of the comprehensive agreement that the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, reached in June to limit the supply of oil through 2024. On July 3, Saudi Arabia announced that the reduction will extend through August.

Further, Crude oil inventory for the week by the Energy Information Administration (EIA) will be released on Wednesday which also has a strong impact on the prices.

Technical Outlook

Since the start of the month, Crude oil witnessed more than 15% gain. Prices enjoyed a recovery rally from the bottom of 5734 towards the recent high of 6722.00.

Today, prices traded at 6716, up 0.28%.

On the above chart, prices trading on the verge of key resistance of 6785, coincided with 0.50 Fibonacci Retracement. A break above 6785 will extend the recent bullish rally, and prices may gain 2%-3% in the near future.

Alternatively, prices may retreat towards 6500-6350 before the next bullish move, as the trend may remain bullish. Following a long bullish candle on the chart. Further, the momentum indicator MACD is still indicating a strong buying interest in the near future.

On the downside, crucial support is seen at 6250 and a break below it may test 6120-6050. That would be possible if the market will find disappointed in China’s stimulus measures and U.S. labour reports.