In January this year, when the deepening of its nearly two-year rout saw crude oil sink like a stone to below $30 a barrel, it was tough to imagine that a sharp recovery was around the corner.

Forecasts of $20 or even $10 a barrel were being bandied around. After all, global demand remained tepid, the world was flush with oil, and key OPEC members Saudi Arabia and Iran were at loggerheads, effectively ruling out action by the cartel to cut output and support prices.

But then, crude oil reversed course and nearly doubled to $50 a barrel by early June, living up again to its well-earned reputation for fickleness.

The Saudi game-plan to put US shale oil and gas producers out of business by driving prices down to unsustainable levels seemed to be playing out.

Even so, crude oil did not decisively rise further and continued hovering around $50 a barrel.

Brexit impact Jitters about the impending Brexit vote and concerns about global growth kept the fuel on a leash. And when the UK voters unexpectedly voted in favour of Brexit on June 23, crude oil took a sharp knock, falling more than 5 per cent the next day to almost $47 a barrel.

A sharp rally in the dollar due to the rush towards safe haven assets contributed to this — oil is priced in dollars globally and a costlier greenback generally dampens the fuel's price.

Over the past few weeks, crude oil, while it has been volatile, has been trending downwards. Despite outages in Nigeria and Canada, concerns about the fallout on growth in Europe and the UK, in particular, due to Brexit took a toll.

Uncertainty So did continued high levels of oil inventory in the US, which offset the positive sentiment from a decrease in the number of rigs deployed.

The International Energy Agency, last week, said that the global oil glut is refusing to ease and acts as a dampener on crude oil prices.

Trying to predict oil prices is always a mug’s game, and it is especially so in such volatile market conditions.

Even so, indications that global central banks, including the US Federal Reserve, will adopt an easy monetary policy to counter economic growth risks should keep a floor on crude oil prices around current levels.

At the same time, a rise above $60 a barrel seems unlikely, given that around these levels, several US shale producers will be back in business and output should start rising again, thus putting a cap on prices.

On the charts In March, when oil price was hovering around $40, we had forecast for a rise to $50 and also cited that a rally beyond $50 is less likely.

The WTI crude oil future on the NYMEX recorded a low of $26.05 per barrel in February and surged to a high of $51.67 in June. However, prices have reversed lower from this high and are currently trading around $45. So, where are crude oil prices headed now?

Global prices A double bottom is seen on the charts with a low around $26, which may signal the end of the overall downtrend.

This suggests that the recent pull-back from the high of $51 could just be a corrective fall of the prior uptrend that had begun from the February low.

The 21-week moving average support is at $43.5 and then the 38.2 per cent Fibonacci retracement support is around $42 for the contract. Also, there is a strong trend support between $40 and $39.5.

Although the above mentioned supports can be tested in the short term, a sharp fall breaking below the $40-$39.5 zone is less likely. A subsequent reversal from these supports can take the contract higher to revisit the $50 levels.

The region between $50 and $53 is a strong medium-term resistance zone. The contract would gain bullish momentum only on a strong break above $53. Such a break can take it higher to $57 and $59.

The next resistance in the $60-$62 zone is likely to cap the upside in crude oil prices over the medium term.

Domestic contract The crude oil futures contract traded on the Multi Commodity Exchange (MCX) is in a short-term downtrend.

The upmove that had begun from the February low of ₹1,805 per barrel halted at a high of ₹3,442 in May. The contract is currently hovering above ₹3,000. A break below ₹3,000 can drag it to ₹2,925 — the 21-week moving average support and then to ₹2,860 in the short term.

A strong reversal from these supports and a subsequent break above ₹3,000 will ease the downside pressure and take the contract higher to₹3,300 and ₹3,400. The region between ₹3,300 and ₹3,400 is a key resistance zone.

A strong break above ₹3,400 will open the doors for a fresh rally to ₹3,900 and ₹4,000. Further break above ₹4,000 will increase the possibility of the rally extending to ₹4,300 over the medium term.

The contract has strong support near $2,800 which may limit the downside in the contract. The medium-term outlook will turn negative only on a decisive decline below this support.

The next targets will be ₹2,600 and ₹2,400.

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