China reopening its border after three years and a moderation in the US inflation triggered a rally in crude oil prices last week. The inflation in the US cooled to 6.5 per cent in December from 7.1 per cent in the month before. This led to crude oil posting a strong weekly gain of 9 per cent as the Brent futures on the Intercontinental exchange ended the week at $85.6 per barrel.

Similarly, the crude oil futures on the Multi Commodity Exchange (MCX) surged 5.1 per cent to close the week at ₹6,462.

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The rally was despite the data from the US Energy Information Administration showing that the inventories shot up. The crude oil stocks in the US increased by a massive 19 million barrels against the expected drop of 2 million barrels for the week ended January 6.

Market expects China, the largest importer of the energy commodity, to create demand. Additionally, as US inflation takes a downward trajectory, the dollar is likely to soften, supporting the prices of the crude oil.

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Brent futures ($85.6)

The Brent futures bounced off the level of $78 and ended the week at $85.6 compared to the previous week’s close of $78.5. That said, the outlook will turn positive only if the price moves decisively above $90. In such a case, there might be a rally towards the resistance band of $98-100. On the other hand, if there is a fall from here, the price band of $76-78 will be a support. Subsequent support is at $65.

MCX-Crude oil (₹6,462)

The January futures of crude oil soared and closed the week at ₹6,462 versus the preceding week’s close of ₹6,149. While fundamentally there has been some optimism of late, the chart shows that the price is still below the key ₹6,750 resistance. Only a breach of this can turn the short-term technical outlook bullish.

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Should there be a rally above ₹6,750, the contract will most likely surpass ₹7,000 and touch ₹7,500. But if bears can regain traction on the back of the barrier, the downtrend will resume where the contract might see price falling to ₹5,900 at first with potential extension of the downswing to ₹5,600.

Trading strategy: Last week, we recommended going short with average selling price at ₹6,275 with stop-loss at ₹6,750. Hold these shorts as the contract is below the ₹6,750 resistance. Going ahead, revise the stop-loss down to ₹6,050 when price falls below ₹5,900 and tighten it further to ₹5,900 when the contract goes below ₹5,750. Exit the shorts at ₹5,600.

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