Trading position (short-term; my opinion; levels for crude oil’s continuous futures contract): Long positions with entry at $63-63.5, with $59.7 as a stop-loss and $68.20 as the initial price target.
Oil is on a rising spree as predicted in the last alert, with the price touching $67.75 levels. Can we expect oil to rally further or will it push back?
US gasoline prices hit the highest point since 2014 prior to Memorial Day. A consistently rising demand for oil distillates in the US is unstoppable. Markets are in a bullish mood primarily because of optimism about demand followed by restricted oil production.
US total petroleum inventories (crude plus refined products, not including Strategic Petroleum Reserves) have fallen to end-of-March 2020 levels when Covid-19 was in its early days in the Western world. A dropping inventory level indicates a faster than expected rise in demand, and that’s what we are witnessing right now.
OPEC+ has planned a meeting to decide on production targets for the coming months, and there are reports that it will stick to the earlier plans of ramping oil production gradually. With increasing demand, the market is getting tighter, as production is limited.
With respect to the demand front in Asia, India’s daily new cases are consistently dropping. However, other countries are starting to suffer. Malaysia will impose a total nationwide lockdown from June 1-14 as Covid-19 cases hit a new record. Likewise, Japan has extended the Covid-19 emergency till the end of June.
The dollar has strengthened a bit with levels crossing the key 90.00 figure. Sentiments have improved because of the recovery in US yields and speculations ahead of President Biden’s announcement of a multi-trillion budget. A strong dollar in the coming days will put resistance to oil’s rally.
In summary, multiple signals like inventory reduction and gasoline price increase are indicating a fast demand recovery of black gold. The bullish outlook for oil continues with some caution due to Asia’s Covid-19 situation and a possibly stronger dollar.
As always, we’ll keep you, our subscribers, well-informed.
Trading position (short-term; my opinion; levels for crude oil’s continuous futures contract): Long positions with entry at $63-63.5, with $59.7 as a stop-loss and $68.20 as the initial price target.
Thank you.
Nishant Jain, MBA, CPSM
Oil Trading Strategist
