Reports of potential higher supply of crude oil from Russia in the coming months and some profit booking led to drop in prices last week.

The Brent crude futures on the Intercontinental Exchange (ICE) was down 1.1 per cent as it closed at $86.7 a barrel. Similarly, the MCX crude oil futures (February contract) depreciated 1.7 per cent as it closed the week at ₹6,506 per barrel.

The decline was despite a lower-than-expected rise in the US inventory. Notably, the OPEC+ meets next week which should be closely monitored as any announcement pertaining to supply has the potential to impact prices.

That said, the chart shows that the contracts remain below a key resistance and thus, the energy commodity shows some bearish inclination, especially after a dip in price last week.

Brent futures ($86.7)

Unable to move above the resistance band of $88-90, the Brent futures declined 1.1 per cent last week to close at $86.7. The chances of a fall from here looks high. Even as $85 can offer support, we expect the price to fall below this level, possibly to $82, a support. Next support is at $78.

MCX-Crude oil (₹6,506)

The February futures of crude oil witnessed a volatile session on Friday. Although it registered an intraweek high of ₹6,740, it declined to close the week lower at ₹6,506. Note that the 20- and 50-day moving averages coincide at ₹6,460 and so, this can offer good support for the contract.

But one should be wary that the overall trend remains bearish and there has been some short build-up over the past week. That is, as the price declined, the cumulative Open Interest (OI) of crude oil futures on the MCX increased to 5,748 contracts on Friday from 4,545 contracts by the end of the previous week.

So, the likelihood of a fall looks high. Support below ₹6,460 is at ₹6,150. Subsequent support is at ₹6,000. On the upside, ₹6,750 continues to resist the bulls. Resistance above this level is at ₹7,000.

Trading strategy: Three weeks ago, we advised to short crude futures with average selling price at ₹6,275; stop-loss at ₹6,750. Hold these shorts. But lift the stop-loss a little higher to ₹6,820.

Going ahead, revise the stop-loss down to ₹6,500 when price falls below ₹6,150 and exit all the shorts at ₹6,000.