Why crude oil outlook is positive for the week

Akhil Nallamuthu |BL Research Bureau | Updated on: Mar 19, 2022

MCX-Crude and Brent futures have bounced off the support

Notwithstanding the diplomatic pressure by the US to stop buying oil from Russia, India has gone ahead to import Russian oil at discounted price. But notably, according to some reports, India is not the only country; some European countries such as Germany, Italy, France, and the Netherlands were among the top buyers. This would mean India might also buy Sakhalin oil, which had no takers in the previous week, at considerable discount which can translate to higher margins for the domestic refiners.

While there has been a steady decline in the crude oil inventories, the latest EIA (Energy Information Administration) data, released on Wednesday, shows that the inventory in the US went up by 4.3 million barrels as against the expected depletion of 1.8 million barrels. Yet, this did not stop the rally in price towards the end of last week resulting in Brent crude reclaiming $100-territory.

Brent futures ($107.9)

The Brent futures on the Intercontinental Exchange (ICE) slid in the first half of last week to mark a three-week low of $96.93 a barrel. But after trading below $100-mark briefly, the contract recovered sharply in the latter half to end the week at $107.9. Thus, Brent crude posted a weekly loss of about 4.2 per cent.

Nevertheless, the uptrend looks intact and the price bouncing strongly off the critical support of $100 means the bulls have not really given up. Below $100, there is a support at $86 and until the price stays above this level, the trend will be considered as bullish. Similarly, on the upside, there is a resistance band of $115-120. Subsequent resistance is at $130. So, in the near-term, there may not be a bearish reversal and the contract will most likely trade within the range of $86 and $120 in the short-term. Whatsoever, the likelihood of the contract retesting $120 this week is high.

MCX-Crude oil (₹7,960)

Last week, the continuous futures contract of crude oil declined and registered an intra-week low of ₹7,154 before recovering and closing at ₹7,960. Therefore, as we expected, the contract rebounded from the price band of ₹7,000-7,200, where we advised to go long. From here, the contract is expected to move above ₹8,000 and rally to ₹8,500 this week. A breakout of this level will push the price up to ₹9,400. If it heads south from here, it can be limited to ₹7,430.

Therefore, traders can consider initiating fresh short-term long positions. Those who hold March futures can consider rolling over to April futures, which closed at ₹7,864 as our short-term outlook is positive. Considering these factors, traders can buy at current level and accumulate longs when price dips to ₹7,430 with initial stop-loss at ₹7,080. Those who executed longs between ₹7,000 and ₹7,200 last can also maintain the stop-loss at ₹7,080. On the upside, when the contract rises above ₹8,500, tighten the stop-loss to ₹7,800. Liquidate the longs at ₹9,400.

Published on March 19, 2022
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