Rise in the US crude oil inventory and the strengthening of the dollar last week weighed on the prices of crude oil. While the dollar index rallied by about 1 per cent, the crude oil stocks in the US rose by 4.1 million barrels against the expected fall of nearly 1 million barrels.

Thus, the Brent crude futures on the Intercontinental Exchange (ICE) was down nearly 8 per cent as it closed at $79.7 a barrel. Similarly, the MCX crude oil futures (February contract) depreciated 6.3 per cent as it closed the week at ₹6,097 per barrel.

Brent futures ($79.7)

The Brent futures tumbled below a rising trendline support, hinting that the downtrend is set to continue. We forecast the prices to fall to $76, its nearest notable support. Support below this level is at $70 and the subsequent one at $65.

Notably, on the daily chart, there is a bearish flag formation which indicates a steep fall to $58 over the medium term.

MCX-Crude oil (₹6,097)

The February futures of crude oil declined through last week and has now fallen below both the 20- and 50-day moving averages (DMAs). Along with the drop in price, the cumulative open interest of crude oil futures on the MCX shot up to 11,099 contracts on Friday as against 5,748 contracts by the end of the previous week. This shows fresh short build-up.

Going forward, we anticipate more fall to come. The contract might slip below the immediate support at ₹6,000 and descend towards ₹5,550 in a month. Support below ₹5,550 is at ₹5,000.

On the other hand, if the contract rebounds from the support at ₹6,000, it can go up to ₹6,400, where both the 20- and 50-DMAs coincide now. A rally beyond this level is less likely and the overall bearish bias will stay valid as long as the price stays below ₹6,800.

Trading strategy: Continue to hold the shorts taken at an average price of ₹6,275. As the price is now below ₹6,150, the revised stop-loss would be at ₹6,500. The target for this is ₹6,000.

Given that the chance for a fall below ₹6,000 ls high, revise the target lower to ₹5,600.