Crude oil prices were up last week as supply tightness is keeping the oil prices afloat despite the demand concerns. The Brent crude futures on the Intercontinental Exchange (ICE) gained 0.7 per cent and the MCX crude oil futures (continuous contract) were up 2.4 per cent last week. They have closed at $94.15 and ₹7,213 per barrel respectively.

There were factors that could have weighed on the energy commodity. For instance, the US inventory increased 2.6 million barrels compared to an expected increase of 0.5 million barrels, the latest EIA (Energy Information Administration) data showed. Apart from this, China, the largest importer of crude oil, is widening Covid restrictions which can hit the demand for the commodity.

However, the US and German economies posted better-than-expected growth numbers giving a positive impetus on crude oil prices. Moreover, the European sanctions on Russia, which will kick in from December first week, and the production cut by the OPEC are significant concerns with respect to supply.

The net impact by all the above factors were positive on crude oil prices. The charts too are showing a bullish bias and so, we can expect the prices to go up from here.

Below is the analysis and trade recommendation based on technical analysis.

Brent futures ($94.15)

The support at $89 helped Brent crude futures to rebound and close the week with a gain. The price action on the daily chart shows a positive bias and the likelihood of the contract making further gains is high. However, one should be wary of the resistance band of $98-100 where the contract might see profit booking resulting in decline in price.

Yet, we do not expect the price to drop below $89. But if the contract moves beyond $100, the short-term uptrend will gain traction. Notable resistances above $100 are at $102 and $105.

MCX-Crude oil (₹7,213)

The November futures of crude oil on the MCX bounced off the support at ₹7,000. Thus, the contract has clearly formed a higher low on the daily chart and this means the bulls are firming up their grip. Substantiating this, along with a rally in price, the cumulative Open Interest (OI) of crude oil futures on the MCX increased to 4,571 contracts on Friday as against 3,926 contracts by the end of the preceding week. This indicates fresh long build-up.

Therefore, the probability of a rally here is high. But ₹7,600 is a considerable barrier. A breakout of this can intensify the rally where we could see the price swiftly rising to ₹8,000. On the other hand, if the contract drops from here and slips below the important support at ₹7,000, we might see the decline extending to ₹6,800 or even to ₹6,630, the support levels. Nonetheless, this drop is likely to happen.

Trade strategy: We suggested initiating long positions last week at around ₹7,043 with stop-loss at ₹6,725. As per our recommended adjustments, the revised stop-loss would now be at ₹7,100. Hold this position. However, liquidate when price touches ₹7,600, since it is a strong resistance which can trigger a corrective decline.

After exiting the longs at ₹7,600, we can wait for the contract to breach this level before buying again.

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