Near-term correction in crude likely

Could a near-term reversal in the fortunes of crude, which rallied 33% from its low this year to Rs 2,911 a barrel on Monday, be on the cards? Some commodity market brokerage officials feel so. Kishore Narne, associate director at Motilal Oswal Commodities, has given a sell call on the near month futures at Rs 2,930 for a target of Rs 2,860 this week itself. He, however, cautions clients to trade with a stop loss at Rs 2,980.

Interestingly, the positions of the top-10 buyers and sellers bear out what Narne posits. After almost a month, the top-10 buyers of crude on commodity bourse MCX held fewer contracts than the top-10 sellers.

The top-10 buyers held 5,430 contracts (1 contract =100 barrels) versus 6,500 contracts held by the top-10 sellers on Monday. From April 12, the top purchasers held contracts in excess of those held by sellers till Monday.

The recent upbeat sentiment in crude was on account of the global surplus having fallen from 2mbpd (mn barrels per day) to around 0.5 mbpd because of the Canadian wildfire and fall in US shale production.

While the latter is expected to fall further, the Canadian wildfire which knocked production of one-third of the nation’s oil sands production would stabilise. Also, the fall in US shale would be offset by Iran pumping more. Analysts fell the upside would be capped at $48 with support at $35-37 a barrel.