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A call to OPEC+ for an increase in production of crude oil over and above 400,000 barrels a day went unanswered in the latest OPEC-JMMC meeting held last week. The Joint Ministerial Monitoring Committee (JMMC) decided to proceed with the plan to increase production by 400,000 barrels per day. This means the rising crude price may not experience pressure in the form of additional supply. This, along with the geopolitical tensions revolving around Russia and Ukraine, means the time cannot be better for oil bulls for an onslaught.
Moreover, the latest EIA (Energy information Administration) data shows that there is drop in the US inventory by 1 million barrels as against the expected increase of 1.8 million barrels. Thus, the drawing of the energy commodity has come in as a surprise fueling the rally last week. The spot price of Brent crude went up by 4 per cent to close the week at $93.45 a barrel.
MCX-Crude oil (₹6,902)
The February futures of crude oil on the Multi Commodity Exchange (MCX), which was trading in the narrow range of ₹6,500-6,700, broke out and closed at ₹6,902 on Friday. Thus, it appreciated by 5.5 per cent last week. The rally which began in early December 2021 from about ₹5,000 looks steady and so, there could be more on the upside going ahead. Supporting the bullish bias, the cumulative open interest of all active crude futures on the MCX has seen a considerable increase i.e., it stood at 16,931 contracts on Friday compared to 9,911 contracts by the end of November last year. Hence, one can remain bullish on crude oil.
The MCX-Crude futures is likely to crossover ₹7,000 and touch ₹7,250 and ₹7,500 in the short-term. Considering that it could retest ₹6,700 before moving above ₹7,000, traders can split the entries into three. That is, buy for one-third of the intended amount at current levels, another one-third at ₹6,800 and the remaining at ₹6,700. Thus, the average buy price could be around ₹6,700. Place initial stop-loss at ₹6,450. When the contract touches ₹7,250, exit one-third of the longs, and revise the stop-loss to ₹6,950. Book the remaining longs at ₹7,500.
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