After a 13% rally so far this year, is upside in MCX crude oil futures capped?

On the Comex today, US futures were trading at $80.52, down by $0.38 or 0.47% while the Brent oil futures were trading at $84.91, lower by 0.34 or 0.40%

Crude oil prices have seen a robust rally this year, Anuj Gupta, Head & Currency, HDFC Securities said, highlighting a 14% uptick in the US WTI crude oil price and a 10% jump in Brent crude prices.

What charts say?

Decoding the current chart set-up, Naveen Mathur, Director - Commodities & Currencies, Anand Rathi Shares and Stock Brokers, said that the July has broken out above the horizontal resistance line at Rs 6,700 and is trading above the 100-Daily Moving Average of Rs 6,660. A bullish view persists above Rs 6650, with potential resistance seen towards Rs 6,840 and Rs 7,040, Mathur said while placing the support at Rs 6,740-Rs 6,660.

"Bullish signals for oil demand, bolstered by strong US gasoline consumption during the summer driving season and a revival in air travel, are expected to maintain the upward trend in the short term," Mathur said.

JM Financial Services' Pranav Mer also sees a positive momentum on charts and expects the July contract to beat its previous lifetime high. He estimated a target price of Rs 6,845/6,900 putting the support levels at Rs 6,750-Rs 6700, while on the upside prices, may test Rs 6,845/6,900. The Vice President, EBG - Commodity & Currency Research, however acknowledged that oil prices were stuck in a range over the past couple of trading sessions with WTI crude holding firm above $80 per barrel.

While gains are a given in the near term, the upside remains capped, he opined.

Expert Prathamesh Mallya, who is DVP Research, Non-Agro Commodities & Currency at Angel One, also sees price following an upward trajectory despite ongoing headwinds in the form of China consumption and looming fears of Fed rate hike.

Triggers

Indian prices have held their fort helped by a stronger dollar which makes the dollar-price commodities expensive for importers of other currencies. The dollar index (DXY) is hovering near a 106 mark against a basket of six major currencies and it has appreciated by 1.2% in the last one month.

Notwithstanding a China setback, prices are expected to stay firm on demand expectations in the current US summer driving the season along with the possibility of more escalations in the tensions in the Middle East. The Houthis have so far sunk two vessels and seized another, and said on Tuesday they used a missile to hit a vessel in the Arabian Sea.

Headwinds

Despite two consecutive weeks of gains, fears about China's economic health persist, driven by a real estate slump, stunted wage growth, and high youth unemployment, Prathamesh Mallya, DVP Research, Non-Agro Commodities & Currency at Angel One, said.

European Union's new sanctions against Russia, including a ban on reloading Russian LNG is also being seen as a setback. The view is concurred by Mallya who sees some hit in economic activity and oil demand.

Sustainability of gains will depend on various factors including geopolitical tensions, supply from the US, China's demand trajectory and developments in the wider financial markets, Mathur said who thinks a delay in the US Federal Reserve's rate cut, sluggish oil demand from China, and a potential ceasefire in Gaza could deter the oil price rally in the long term.

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