Crude oil prices witnessed higher volatility last week. The prices were subjected to sharp movement, especially in the second half of last week as tensions mount in West Asia. The Yemen-based Houthis’ disruption in the oil flow in the region is causing the unrest and this increases the risk of price going up.

However, in the end, on a weekly basis, the prices closed lower. Brent crude oil futures on the Intercontinental Exchange (ICE) lost 0.6 per cent as it closed at $78.3 per barrel. Crude oil futures on the MCX was down 1.5 per cent by ending the week at ₹6,068 a barrel. However, there are risks going ahead and the prices are likely to be volatile this week.

In the US, the crude oil inventories rose but this only had a limited impact on the prices as the developments in West Asia took centrestage. According to the Energy Information Administration (EIA), the US crude oil stockpiles increased by 1.3 million barrels as against the expected drop of 0.2 million barrels for the week ended January 5.

Geopolitics and fundamentals apart, the chart continues to show a lack of trend in the prices of the energy commodity.

Brent futures ($78.3)

Brent futures rose sharply to mark an intraday high of $80.75 on Friday. But it could not sustain above the $80-mark and descended. The contract closed at $78.3 on Friday versus the preceding week’s close of $78.8.

The contract is stuck in the range of $75-80. Until either of these levels are breached, the direction of the next leg of trend will remain uncertain.

A breakout of $80 can lead to a quick upswing to $83 or even to $85. On the other hand, if the contract declines and breaches the support at $75, the short-term outlook will turn bearish. Support below $75 are at $73 and $70.

MCX-Crude oil (₹6,068)

The February futures contract of crude oil has been charting a sideways trend since December last year. It has been trading within the price levels of ₹5,900 and ₹6,250. The broader range is between ₹5,800 and ₹6,350.

The contract can establish a trend only if it moves out of the broader price band of ₹5,800-6,350. A breakout of ₹6,350 can lead to a potential rally to ₹6,800 or even to ₹7,000. But if the contract falls below the support at ₹5,800, it could establish another downswing which can possibly drag the contract to ₹5,500, a strong base. A strong recovery is likely if a fall to ₹5,500 occurs.

Trade strategy: We recommended short positions in January expiry at ₹6,105. Stop-loss is at ₹6,350. Since the uncertainty has grown, we suggest exiting this trade — close out the shorts at the current level of ₹6,033.

Fresh trades can be considered in the February series after some clarity occurs on the chart. Until then, participants can stay away.

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