Why crude futures may strengthen to ₹8,800

Akhil Nallamuthu |BL Research Bureau | Updated on: Apr 30, 2022
With respect to fresh trades, one should wait as the risk-reward ratio is a bit unfavourable at current levels.

With respect to fresh trades, one should wait as the risk-reward ratio is a bit unfavourable at current levels.

Do note that broad range of ₹7,000-8,800 is intact

The crude oil output from Russia has dropped by approximately 1 million barrels per day (MMbpd) in April compared to February levels. However, their exports don’t seem to have taken any significant hit. Asia will receive about 3.5 tonnes of Ural crude in April, the highest since October 2018. Notably, India alone will receive 2.3 million tonnes, doubling from 1.15 million tonnes received in March, again, the highest since October 2018. That said, when we consider the global production, 1 MMbpd drop in Russia could have been a cause of worry. But as it stands, the potential drop in demand from China because of Covid restrictions limited the impact of the supply crunch. On the back of this, the OPEC+ is expected to increase output by the planned 430,000 barrels per day and not more. Probably there could be a marginal increase but not at considerable scale, especially given the demand concerns.

Brent futures ($109.3)

The Brent futures on the Intercontinental Exchange (ICE) rose 2.5 per cent last week as it closed at $109.3 a barrel as against $106.65 a week back. While the contract dropped initially, it recovered quickly and was moving up for most part of the week. Currently trading at around $109, the contract continues to stay within the expected range of $100-125. The direction of break can tell us more about the next leg of trend. A breakout of $125 can intensify the rally whereas a breach of the support band of $98-100 can turn the short-term trend negative.

MCX-Crude oil (₹8,117)

We forecast the crude oil futures price on the Multi Commodity Exchange (MCX) to decline a bit and then move upwards last week. It happened as expected and it posted a weekly gain of 3.7 per cent. But the correction in price was deeper. That is, we anticipated the futures to rebound from the 50-day moving average, which was then at ₹7,570. But the contract made an intraweek low of ₹7,335 on Monday before recovering.

That said, the contract continues to stay in the range of ₹7,000-8,800 and there is no definite trend. This is likely to stay true in the near term.

We recommended to buy crude futures three weeks back 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 touch ₹8,800. Note that there could be a pause when the contract reaches ₹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 30, 2022
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