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Crude oil prices were on fire over the last few weeks. Earlier this week, the crude oil futures contract on the New York Mercantile Exchange (NYMEX) touched the key level of $70 per barrel for the first time since November 2014. Economic crisis in Venezuela – one of the top exporter and the tensions pertaining to the US bringing back sanction on Iran have resulted in the oil prices surging higher.
The NYMEX-Crude oil contract has surged 16 per cent so far this year from $60 to the current levels of $70 per barrel.
On the domestic front, the crude oil futures contract on the Multi Commodity Exchange (MCX) has skyrocketed 22 per cent so far this year, outperforming the NYMEX contract. This is helped by the weak domestic currency. The Indian rupee has weakened about 5 per cent against the US dollar and this has helped the domestic oil contract to make an incremental gain over the US contract.
Where is it headed?
Charts suggest that there is room left for the oil prices to extend the current rally over the medium term. However, an intermediate pull-back declines within this rally cannot be ruled out.
The NYMEX-Crude Oil contract has immediate support at $69. Next key short-term support is at $66 and a crucial medium-term support is at $63.5. There is high possibility of the contract sustaining above $66 in the coming weeks. While there , a rally to $74 is likely in the coming weeks. A strong break above $74 will see the uptrend extending to the next target of $76.
On the domestic front, the MCX-Crude Oil contract has an immediate resistance at ₹4,800. Inability to breach this hurdle can trigger an intermediate pull-back to ₹4,500. However, a strong support is in the ₹4,500-₹4,450 region which is likely to limit the downside with a further fall unlikely.
An upward reversal from this support zone will have the potential to breach the hurdle at ₹4,800 eventually. Such a break will then increase the possibility of the contract rallying to ₹5,500 over the medium term.
Traders with a medium-term perspective can go long at current levels. Accumulate on dips at ₹4,600 and ₹4,500. Keep the stop-loss at ₹4,300 for the target of ₹5,500. Revise the stop-loss to ₹4,850 as soon as the contract moves up to ₹4,950.
Note: The recommendations are based on technical analysis and there is a risk of loss in trading.
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