Hotter-than-expected US inflation and a significant increase in the US crude oil inventory weighed on the crude oil prices last week. The US inflation rose 6.35 per cent (year-on-year) compared with the market expectation for a rise by 6.2 per cent. On the other hand, the EIA (Energy Information Administration) data shows that the crude oil stocks in the US ballooned by 16.3 million barrels as against the expected increase of 2.4 million barrels.
The Brent crude futures on the Intercontinental Exchange (ICE) lost 3.9 per cent and closed at $83 a barrel. Similarly, the MCX crude oil futures (February contract) lost 4.1 per cent and ended the week at ₹6,317 per barrel.
Brent futures ($83)
Even though the Brent futures fell over the past week, it remains within the broad range of $76-90. The next leg of trend depends on the direction of the break of this range. For now, we expect the prices to oscillate within this range for some more time.
MCX-Crude oil (₹6,317)
The March futures of crude oil declined below a support at ₹6,500 last week and closed at ₹6,317. The MCX crude oil futures appears to have formed a broad base between ₹6,000 and ₹6,750.
The breach of either of these levels will lend us a clue about the next leg of trend. Until then, traders can either stay out or opt for range trading strategies. Resistance above ₹6,750 are at ₹7,000 and ₹7,250. Support below ₹6,000 are at ₹5,550 and ₹4,850.
Trading strategy: Traders can stay away for now. Consider fresh trades when the contract reaches the boundary of the range.
Go long when the price falls to ₹6,150. Add more longs at ₹6,075 and place stop-loss at ₹5,900. When the contract rises to ₹6,500, tighten the stop-loss to ₹6,300. Exit at ₹6,700.
On the other hand, if the contract rallies, go short at ₹6,700 with a stop-loss at ₹6,850. When the contract falls below ₹6,400, modify the stop-loss to ₹6,600. Exit at ₹6,150.
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