Yet again, in the OPEC (Organisation of the Petroleum Countries) and non-OPEC Ministerial meeting it was concluded to largely keep the output increase at around 432,000 barrels per day through May. They continue to state that the current volatility in prices is not caused by fundamentals but by the geopolitical developments, thus refusing to increase production at higher rate. It should also be noted that several OPEC countries are finding it difficult even to meet the current production targets due to lack of investment and operational outages, which eroded their capacity. Therefore, we cannot expect significant production increase by the OPEC at least in the near-term.

But on the other hand, Biden Administration last week announced that the US will release 1 million barrels per day from their stockpiles for the next six months. Also, the members of IEA (International Energy Agency) agree with this, and those member countries are ready to release oil from their energy reserves, mitigating the impact of supply disruption caused by the Ukraine war. This can already be seen in prices as it fell last week.

Brent futures ($104.4)

The Brent futures on the Intercontinental Exchange (ICE) lost a little over 13 per cent last week to close at $104.4 a barrel against preceding week’s close of $120.65. This is the biggest weekly loss since the third week of April 2020. Yet, the contract is above $100-mark and the support at $98 and so long as the price is above this level, we cannot assume the declines as a bearish reversal. That said, in the next few weeks, the contract might be fluctuating within the broad range of $100-125.

MCX-Crude oil (₹7,559)

We expected the crude futures on the MCX to witness a correction to ₹8,000 last week. But the decline was a bit steeper where the contract ended the week at ₹7,559 after hitting an intraweek low of ₹7,426. So, stop-loss would have triggered in our long position.

From the current level, the contract has the 50-day moving average support at ₹7,350 and the psychological level of ₹7,000. Thus, the price area of ₹7,000-7,350 will act as a solid base. As long as this level holds, the price drops cannot be counted a bearish reversal. We expect the contract to rebound anywhere within ₹7,000-7,350 and retest ₹8,800 in the near-term. But a rally beyond that is unlikely. Essentially, the contract could stay sideways within ₹7,000 and ₹8,800.

Since risk-reward looks good for longs, traders can consider long at current level and on a drop to ₹7,000. Place initial stop-loss at ₹6,600 and tighten it to ₹7,200 when the futures rally beyond ₹8,000. Revise it further upwards to ₹7,750 when the contract tops ₹8,350. Liquidate the longs at ₹8,800.

Published on April 2, 2022