Derivatives

Crude check: Trend is up for oil

Akhil Nallamuthu |BL Research Bureau | Updated on: Apr 23, 2022

Likely to bounce off ₹7,570

Global growth concerns negatively impacted crude oil prices. Early last week, the International Monetary Fund (IMF), in its latest World Economic Outlook, slashed global growth to 3.6 per cent in 2022, 0.8 per cent lower from their January outlook. Apart from this, there are demand concerns for the energy commodity because of Covid lockdowns in China. These are possibilities of demand shrinkage of about 1.2 million barrels per day in China according to some reports. Moreover, the dollar rally, on the back of the expectations of swift interest rate hike by the Federal Reserves, suppressed oil prices. Nevertheless, the overall trend remains bullish on the chart as the prices stay above some crucial levels.

Brent futures ($106.65)

The Brent futures on the Intercontinental Exchange (ICE) dropped nearly 5 per cent to end the week at $106.65 a barrel as against $111.7 a week back. While most of the decline happened in the first half, the contract was largely flat in the latter half. But it remains above the support band of $98-100 and as long as the contract stays so, the trend will be bullish. A breach of this band can turn the short-term outlook negative.

We expect the contract to oscillate between $100-125 in the near-term and the direction of the break of this can give us cues on the next leg of trend. This is expected to influence the prices on the MCX (Multi Commodity Exchange) where the crude futures can remain in the broad sideways range.

MCX-Crude oil (₹7,824)

The continuous futures of crude oil on the MCX dipped by 3 per cent to close the week at ₹7,824 a barrel. Although it made an intraweek high of ₹8,347 on Monday, the crude futures could not produce follow through rally and declined. Yet, price is above the 50-day moving average (DMA), which is currently at ₹7,570.

Similar to 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.

We had advised to go long a couple of weeks ago at around ₹7,260. As it stands, three-fourth of the total positions were liquidated at ₹8,000 and the stop-loss was revised to ₹7,200 for the remaining holdings. The target for that is ₹8,800. Traders can continue to hold this as there is a good chance for the contract to bounce off the 50-DMA at ₹7,570. Note that there could a pause when the contract touches ₹8,350. With respect to fresh trades, one should wait as the risk-reward ratio is a bit unfavourable at current levels.

Published on April 23, 2022
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