Crude check: Bulls coming back?

Akhil Nallamuthu |BL Research Bureau | Updated on: May 21, 2022

Yet, the near-term trend for the commodity is uncertain

Easing of lockdown in China and the increasing odds of Europe’s Russian oil embargo outweighed crude oil demand concerns and this resulted in the price settling at higher levels last week. Brent crude futures gained 0.9 per cent to end at $112.55 a barrel whereas crude oil futures on the Multi Commodity Exchange (MCX) rose 2.7 per cent and closed at ₹8,618 a barrel.

Although the rig count in the US continued to increase for the ninth week in a row, meaning a supply increase in crude, there was no easing in price as it can only partially offset the Russian output cut. Therefore, the upside risk persists in the energy commodity. However, technically, the prices are moving within a range which does not indicate a definite trend.

Brent futures ($112.55)

Even though there was a drop in prices mid-week, Brent futures on the Intercontinental Exchange (ICE) recovered on Thursday and Friday and ended the week with a gain of 0.9 per cent as it closed at $112.55. It had ended at $111.55 by the end of the preceding week. Yet, the contract continues to trade in the range of $100-115 and until either of these levels are breached, the uncertainty over the next swing in price will remain. Here are the key levels outside if the range - resistances above $115 are at $122 and $130 whereas supports below the support band of $98-100 are at $90 and $86.

MCX-Crude oil (₹8,618)

For over a month, the continuous contract of crude oil on the MCX has been trading in the range of ₹7,000-8,600. But last week, it closed just above the upper boundary of the range i.e., at ₹8,618 after registering an intraday high of ₹8,774 on Tuesday. The weekly gain stands at 2.7 per cent in crude futures on MCX which is higher than the 0.9 per cent gain in the Brent futures. This is largely due to the weakness in the rupee and so, the close above ₹8,600 cannot really be relied upon as a decisive breakout. Yes, further weakness in rupee can result in MCX futures outperforming Brent futures. But it cannot translate into a definite trend. So, we recommend staying out of the market until the Brent futures move out of the range $100-115.

Wait n watch
We recommend staying out of the market until the Brent futures move out of the range $100-115

Last week, we suggested traders with higher risk appetite can short MCX futures. But it would have hit the stop-loss at ₹8,750 as the contract made a high of ₹8,774. Right now, the fundamental factors are in favour of the price witnessing a break on the upside. So, no new short positions are recommended at this juncture. Overall, traders should wait for Brent futures to move out of $100-115 to start considering new positions.

Published on May 21, 2022
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