Derivatives

MCX crude will turn bearish below 7,200

Crude oil prices slumped last week because of recessionary fears, which would weigh on the demand for the energy commodity, as central banks across the globe are prioritising their fight against inflation over others. As a latest measure, the Fed raised rates by 75 basis points to set the policy rate at 1.75 per cent. Adding to the woes, the dollar strengthened last week where the dollar index rallied to its highest level of 105.78 since December 2002.

The above factors outweighted the supply concerns and this led to a considerable fall in prices.

While these developments go against the crude oil price, the charts of Brent crude and MCX crude futures show that the trend remains bullish and more correction is needed to call it a bearish reversal.

Brent futures ($113.1)

The continuous Brent futures contract on the Intercontinental Exchange (ICE) lost 7.3 per cent last week by closing at $113 on Friday versus $122 by the end of the preceding week. This is the biggest weekly loss since the final week of March. Note that the contract is now below an important level of $115 and that means the correction could extend. While the trend will remain bullish so long as the contract lies above the key support band of $98-100, it could decline to the support at $108 this week.

We expect the contract to bounce off $108 level and rally back to the $120-122 band. But whether this resistance will be broken is a question mark given the prevailing conditions. Such a break can induce fresh positive momentum which could take the contract to the lifetime-high of $139.13. But if Brent futures fall below $108, it can decline to $98-100 support quickly.

MCX-Crude oil (₹8,373)

The crude oil futures on the Multi Commodity Exchange (MCX) tumbled 9.1 per cent last week and closed at ₹8,373 as against the preceding week’s close of ₹9,214. While it was seeing a gradual decline through the week, the fall accelerated on Friday when most of the decline happened. Thus, the stop-loss at ₹8,600 for the longs we recommended would have been triggered on Friday.

However, the contract has a support at ₹8,400 where the 50-day moving average and a rising trendline coincide. This makes the support significant. But since there are chances for a decline in the global prices, the MCX crude futures could briefly dip below ₹8,400 before a recovery. Probably, it will drop to ₹8,000.

The possible rally that we expect after the contract touching ₹8,000 can take it back to ₹9,500-9,600 levels. Above this price region, the crucial level of ₹10,000 can be a barrier.

Alternatively, if the contract slips below ₹8,000, it could fall to ₹7,600 – the nearest support. A breach of this can pull the contract down to ₹7,200.

Published on June 18, 2022