Crude oil prices, which were already on a rise last week, got a further boost on Friday as Russia announced a 5 per cent cut in their production in March. This means, the supply from Russia will drop by about 500,000 barrels a day next month.
The Brent crude futures on the Intercontinental Exchange (ICE) rose 8.5 per cent and closed at $86.5 a barrel. Similarly, the MCX crude oil futures (February contract) appreciated 7.5 per cent and closed the week at ₹6,556 per barrel.
Brent futures ($86.5)
The Brent futures found support at $80 and rallied. But from the current level, there is a resistance near-by at $88. The price action on the daily chart shows that the contract is likely to form a range between $78 and $88, and remain within these levels in the near term. The direction of break of this range will determine the next leg of trend.
MCX-Crude oil (₹6,556)
The February futures of crude oil on the MCX rebounded from the support at ₹6,000 last week. It rallied and managed to close above ₹6,500. This indicates of good positive momentum. However, the contract is facing a critical roadblock at ₹6,750. Unless this level is decisively breached, it may not be ideal for us to assume a bull trend.
Moreover, last week’s movement was more of a short-covering rally. Although we cannot neglect this as a positive sign, a breach of ₹6,750 coupled with fresh long build-up will only significantly increase the chances of a rally to higher levels.
That said, the chart indicates that the contract might stay within the broad range of ₹6,000-6,750. Until then, traders can prefer range trading strategies.
Trading strategy: The revised stop-loss at ₹6,500 for the shorts that we recommended would have hit last week. Traders can stay away for now. Initiate fresh shorts when the contract touches ₹6,750 as the chart shows a potential horizontal trend between ₹6,000 and ₹6,750. Target and stop-loss for this can be at ₹6,150 and ₹6,925, respectively.
If the stop-loss of this short is hit and if the contract sees a daily close above ₹6,750, consider long positions. That is, buy crude oil futures with stop-loss at ₹6,500 for a target of ₹7,400.
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