Is crude oil showing signs of breakout?

Akhil Nallamuthu |BL Research Bureau | Updated on: May 29, 2022

Futures set to appreciate

Tightness in the global crude oil supply pushed the prices up last week. Brent crude futures on the Intercontinental Exchange (ICE) hit an eight-week high of $119.72 a barrel on Friday before wrapping up the week at $119.43. Thus, it gained by a little over 6 per cent. Similarly, the futures contract on the Multi Commodity Exchange (MCX) rose 3.2 per cent to close the week at ₹8,897 a barrel.

The impact of the sanctions on Russia and Europe’s attempt to cut its reliance on them for energy are creating tightness in the global crude oil supply. On the other hand, there are reports saying that US summer driving season is set to complicate the supply-demand dynamics as demand is expected to stay steady despite high gasoline prices. All these factors will create further upward pressure on the energy price. Market has already started discounting for the possibility of crude touching all-time high.

The charts too substantiate the bullishness as both Brent and MCX futures have now completed a breakout.

Brent futures ($119.43)

The continuous Brent futures contract on the ICE broke out of the range of $100-115, opening the door for further strengthening. It closed at $119.43 versus previous week’s close of $112.55. The price is likely to rally and test the prior high of $123.74 in a couple of weeks. If the momentum sustains, it can be move towards the lifetime high of $139.13. Whatsoever, the prices are not likely to soften anytime soon unless some drastic changes occur on the fundamental front.

MCX-Crude oil (₹8,897)

Bulls succeeded in lifting the crude oil futures on the MCX above the resistance of ₹8,600 last week. The contract has thus moved out of the ₹7,000-8,600 range and closed the week at ₹8,897 compared to preceding week’s close of ₹8,618, posting a gain of 3.2 per cent. The rise in terms of rupee were lower when compared to dollar as the Indian currency remained steady against the greenback.

The probability of the price touching ₹9,500 is high. The contract could even rally to the key level of ₹10,000 if the upward momentum sustains. On the downside, the price level of ₹8,600 will henceforth act as a considerable base. Subsequently, ₹8,000 level can offer good support.

Considering the bullish undertone, one can consider taking fresh long positions on MCX-Crude futures at the current level of about ₹8,900. Add more longs when price corrects to ₹8,600. Place initial stop-loss at ₹8,000 and tighten it to ₹8,600 when the contract moves above ₹9,500. Liquidate the longs at ₹10,000.

Published on May 28, 2022
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