Crude Check: Testing a resistance?

Akhil Nallamuthu |BL Research Bureau | Updated on: Jul 30, 2022

MCX Crude stays in ₹7,350-8,100 range

Crude oil prices rose last week as the inventories in the US declined more than what was expected. As per Energy Information Administration (EIA), the US inventories declined by 4.5 million barrels compared to the expectation of 0.4 million barrels drop.

Also, the decision on interest rate by the Fed also helped to some extent as they lifted the rate by 75 basis points (bps). Because of the inflation hitting multi-year highs, there was an expectation that the Fed might even opt for a 100-bp hike. So, a 75-bp hike sort of provided some relief. Softening US dollar also helped prices to remain steady.

Therefore, broadly, the market shrugged off the recessionary fears as the tightness in the supply side continues to exist.

The chart also suggests that the prices can go up from the current level. But there are hurdles ahead. Below is the analysis based on charts.

Brent futures ($103.97)

The Brent futures on the Intercontinental Exchange (ICE) appreciated 5.7 per cent to end the week at $103.97. The contract bouncing off the support at $98 hints that the price could move further up from current level. Note that the broad range of $98-124 is valid and so, we cannot reject the possibility of Brent futures gradually appreciating to the range top.

However, there are resistances at $108 and $115.

If the contract moves up from here and invalidates the resistance at $108, it will considerably increase the chances for the price to touch $124. On the other hand, if Brent futures reverses lower after hitting the resistance at $108, it might fall back to the support band of $98-100. This is a crucial support as a breach of $98 can turn the outlook bearish and will result in a quick fall.

MCX-Crude oil (₹7,842)

Following the rally in Brent futures, the crude futures on the Multi Commodity Exchange gained 2.4 per cent to close the week at ₹7,842 versus preceding week’s close of ₹7,660. However, the contract stays in the range of ₹7,350-8,100 within which it has been oscillating for about a month. Therefore, until the contract breaches either of these levels, the next leg of trend cannot be assumed. But note that there is some bullish bias and the probability of the price moving up appears higher.

Yet, to get a clue on the medium- and long-term trend, the contract should move out of the broader range of ₹7,150-9,000.

A breakout of ₹8,100 can lift the crude futures to ₹8,500 – the immediate resistance – initially. A breach of this level can take the contract to ₹9,000.

On the other hand, if it slips below ₹7,350, it can find support at ₹7,150. This is a crucial support because a breach of this can turn medium-term trend bearish and the fall thereafter can be quick. The nearest notable supports are at ₹6,650 and ₹6,300.

Published on July 30, 2022
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