Crude check: Uptrend intact

Akhil Nallamuthu |BL Research Bureau | Updated on: Feb 13, 2022

MCX Futures likely to rally past ₹7,000

The latest US Energy Information Administration (EIA) data shows that crude oil inventories dropped by 4.8 million barrels. This is the second consecutive weekly decline in the inventories. The EIA released its latest short-term energy outlook last week and the report says the Brent crude oil spot price averaged at $87 per barrel in January, a $12 per barrel increase from December. It is forecasted to average higher at $90 in February because of the continuing draws in global oil inventories.

While the price is projected to be at elevated levels in the coming months, the EIA expects downward pressure to emerge in the middle of the year because of the increased production. The average price is expected to fall back to $87 in the second half of this calendar year.

Nevertheless, if the supply growth does not keep pace with demand growth, there can be heightened volatility. On the other hand, the US-Iran talks can impact the supply demand dynamics. If the deal is struck and if the sanctions on Iranian oil are lifted, it can increase the global supply adding downward pressure on prices.

Brent crude

The spot price of Brent crude oil, which was largely flat last week, saw a rally on Friday resulting in price hitting a fresh high of $96.16 a barrel. News reports stating that Russia could invade Ukraine anytime now triggered this sharp rise on Friday. While there are fundamental factors that support elevated higher prices, the charts also indicate that the uptrend is intact and crude oil is likely to scale new heights. In the short run, Brent crude hitting $100-mark is very a much a possibility. Beyond that level, it can face resistance at $106. On the other hand, $90 is a good support. Subsequent support is at $86.50.

MCX-Crude oil (₹6,921)

The futures contract of crude oil on the Multi Commodity Exchange (MCX) continues to rally. Last week, it bounced off the support at ₹6,625 and ended the week at ₹6,921. Although there was a marginal drop in cumulative open interest of all active crude futures on the MCX to 15,830 contracts on Friday compared to 16,931 a week back, the rally of Friday shows that bulls are firmly in control.

Therefore, the contract can be expected to touch ₹7,500 in the near-term. We had recommended fresh longs last week at ₹6,900, ₹6,800 and ₹6,700, all of which would have triggered. Suggested stop-loss was at ₹6,450. Since the chances of a rally from here is highly possible, one can hold on to these longs. When the contract touches ₹7,250, exit one-third of the longs, and revise the stop-loss to ₹6,950 for the rest. Book profits on the remaining longs at ₹7,500.

Published on February 12, 2022
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