Derivatives

₹10,000-mark in sight for MCX futures

Despite the dollar strengthening over the past couple of weeks, crude oil prices did not face much downside pressure. Even though there was some fall towards the end of last week, Brent futures on the Intercontinental Exchange (ICE) and crude futures on the Multi Commodity Exchange (MCX) ended up with gains.

This shows the real trouble is with respect to supply of the energy commodity. The fear of recession and the consequent concerns over the demand for crude oil could not drag the prices as the tightness in the supply seems to be very significant. Crude oil futures staying in backwardation is further evidence to current demand staying higher than the supply.

Therefore, going ahead, unless there is a real drop in demand or a significant progress in easing of the geopolitical situation, the prices of crude oil cannot drop from current elevated levels.

Worryingly, according to the data available from Petroleum Planning and Analysis Cell (PPAC), the Indian basket of crude oil hit a decade high of $121.28 a barrel last week. This can go up further putting a strain on the Indian consumers as well as the trade balance of the country.

Brent futures ($122)

The continuous Brent futures contract in the Intercontinental Exchange (ICE) gained 1.9 per cent last week and ended at $122 a barrel as against $119.72 in the preceding week. Henceforth, the price band of $120-122 will act as a good base and limit the downside. Although $130 can be a resistance as Brent futures move ahead, there is a good chance for it to retest the lifetime high of $139.13.

Therefore, as long as the contract hovers above $120 mark, the likelihood of the contract rallying to $130 is high. The price area of $130-133 is a resistance band. On the other hand, if the contract falls below $120, there may be short-term weakness where the price could moderate to $115 and then possibly to $100. But this is a less probable event and a break below $100 may not happen anytime soon.

MCX-Crude oil (₹9,399)

The crude oil futures on the MCX posted a gain of 1.8 per cent last week and closed at ₹9,399 versus preceding week’s close at ₹9,235. That marks the seventh consecutive weekly gain for the contract.

In line with our expectation, the contract hit ₹9,500 levels as it registered an intraweek high of ₹9,559 on Wednesday. Going ahead, the crude futures is all set to extend the rally and touch the psychological level of ₹10,000. But note that there can be a price correction after the contract rallies to that level.

From the current levels, supports can be spotted at ₹9,000 and at ₹8,600. A decline below these levels, at least in the next couple of weeks, looks less likely.

We suggested long positions at around ₹8,000 a couple of weeks back. As it stands, the revised stop-loss for these positions will now be at ₹8,600. One can continue to hold the longs for a target of ₹10,000.

Published on June 11, 2022