Crude oil prices fell for the third week in a row – Brent crude oil futures on the Intercontinental Exchange (ICE) slumped 4.1 per cent to close at $81.4 per barrel. Crude oil futures on the MCX dropped 3.2 per cent to end the week at ₹6,487.
The war risk premium seems to be fading and the oil market fundamentals are having a bigger say on the prices. Despite the supply reduction from major producers like Saudi Arabia and Russia, the price of the energy commodity has been under downward pressure recently.
The global growth uncertainties and its potential impact on the demand for crude oil is what traders are discounting more recently. So, broadly, a recovery is not likely, at least in the coming weeks.
The charts too indicate that the momentum is with the bears.
MCX-Crude oil (₹6,487)
The December futures of crude oil declined to mark an intraweek low of ₹6,300 on Wednesday. Although the contract pared some of its losses in the last two sessions, it remains below key hurdles.
The uptick could extend from here. But then, crude oil futures can resume the fall. That is, it can go up to ₹6,650 from the current level and then start the descent again. In such a case, December expiry crude oil futures could witness a drop to the support band of ₹6,000-6,070.
Post this fall, there could be a rally. The magnitude of this upswing is uncertain at this juncture.
Trade strategy: We suggested selling November futures last week. Traders would now be holding shorts initiated at ₹6,700 and the revised stop-loss would be at ₹6,720. Book profits in this trade.
After exiting, wait for December futures to rise to ₹6,650 and then initiate fresh short positions. Stop-loss can be at ₹6,830.
When the contract falls below ₹6,300, revise the stop-loss to ₹6,500. Book profits at ₹6,100.