Why crude futures can rally to ₹8,800

Akhil Nallamuthu |BL Research Bureau | Updated on: Apr 16, 2022

But the ₹7,000-8,800 range to stay intact

Oil prices surged last week following the news that Europe is drafting a plan to cut its reliance on Russian oil in phases. Europe is the biggest buyer of the Russian oil. A ban means a hit on their economy as well as the overall supply of the energy commodity. But interestingly the Russian oil seems to have an alternate route to land in Europe and that is through India.

Indian refiners are buying huge amount of Ural and Sokol crude, and coincidentally India’s diesel exports increased to 847,000 barrels per day in March. Out of this, 30 per cent went to Europe. Thus, Indian refiners are profiting from the high international prices. But the domestic consumers are also impacted because of the prices.

The likelihood of the oil prices remaining at elevated levels seems high as output in Russia is dropping because of the difficulty in finding buyers and fast-filling storages. The International Energy Agency (IEA) has forecasted that the production could drop by 3 million barrels per day (MMbpd) in May, taking the overall production below 9 MMbpd, impacting the global supply.

Brent futures ($111.7)

The Brent futures on the Intercontinental Exchange (ICE) surged nearly 9 per cent last week to end at $111.7 a barrel as against $102.78 previous week. Thus, the contract bounced off the support band of $98-100 and it is likely to rally to $125 in the next one or two weeks.

But note that we expect the range of $100-125 to remain intact in the near-term. So, the prices could cool off after reaching $125, possibly back to $100, unless there aren’t any developments significant to the prices.

MCX-Crude oil (₹8,078)

The continuous futures contract of crude oil on the Multi Commodity Exchange (MCX) soared last week and ended with a gain of 9.5 per cent to close at ₹8,078. That means the contract rebounded from the support band of ₹7,000-7,350. The weekly close above ₹8,000 has increased the probability of the price touching ₹8,800. But since this is a considerable resistance, the contract could see a corrective decline thereafter.

Like the Brent crude futures, MCX crude futures could also trade within a range i.e., between ₹7,000 and ₹8,800 in the short term.

Last week, we recommended to go long at ₹7,375, and accumulate on a decline to ₹7,150. This could have triggered as the contract made an intra-week low of ₹7,071. The idea was to exit three-fourth of the longs at ₹8,000 and then tighten the stop-loss to ₹7,200 from the initial level of ₹6,800. For the remaining holdings, the target was ₹8,500. Since there is good chance for the contract to rally to ₹8,800, revise the target up to ₹8,800 with the same stop-loss.

Published on April 16, 2022
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