Derivatives

No definite short-term trend

The price of crude oil dropped considerably in the early part of last week on the back of global growth concerns. Coronavirus remaining a concern in China and the dollar strengthening on the back of the US Fed raising interest rates supported the negative sentiment. However, the decline was short-lived as the price started to recover sharply on Wednesday and rallied in the subsequent sessions, erasing almost all the losses made mid-week. Thus, the Brent crude futures, which was once trading lower by nearly 10 per cent for the week on Wednesday, ended the week almost flat at $111.55 barrel. The preceding week’s close was $112.39.

The geo-political developments with respect to Russian oil embargo in Europe helped fuel the rally as Europe continues to persuade Hungary and bring them in to fold in banning oil from Russia. Such a ban can create significant supply crunch in the global oil supply as Russia is one of the largest producers of the energy commodity.

Brent futures ($111.55)

The Brent futures on the Intercontinental Exchange (ICE) ended the week flat despite witnessing higher volatility. The price action over the past month does not indicate a definite trend as the contract continues to trade in the range of $100-115. Therefore, only a break on either side of the contract can give us a clue on the next leg of the trend. Resistances above $115 are at $122 and $130 whereas supports below the support band of $98-100 are at $90 and $86.

MCX-Crude Oil (₹8,511)

Resembling the price movement in global crude prices, the continuous contract of crude oil futures on the Multi Commodity Exchange (MCX) declined initially and rebounded in the second half of the week, ending the week flat at ₹8,511 versus previous week’s close of ₹8,447. The contract is trading in the range of ₹7,000-8,600 for a little over one month. So, it should breach either of these levels to set the next swing in price. Until then, trend following traders can opt to stay out of the market.

On the other hand, traders with high risk appetite can follow range trading strategy and going by that logic, current level is a good area to short. Probably, one can short now with stop-loss at ₹8,750 and exit once the price drop to ₹8,000. But be cautious that a breakout of ₹8,600 can lead to a rally to ₹9,000 and the possibly to ₹9,325.

But in case if the contract slides below the support at ₹7,000, it could decline swiftly to ₹6,625 and ₹6,400 as the near-term outlook will turn bearish.

Published on May 14, 2022