Crude oil prices weakened last week. Brent crude oil futures on the Intercontinental Exchange (ICE) depreciated 2.8 per cent as it closed at $76.9 per barrel. Crude oil futures on the MCX lost 2.5 per cent by ending the week at ₹6,007 a barrel.
Brent futures ($76.9)
Prospects looked promising for Brent futures after it broke out of the resistance at $80 in the first half of last week. However, the upswing did not sustain, and the contract fell.
The contract scaled back below $80, and the price action shows that Brent futures has been experiencing considerable sell-off in the recent sessions.
We expect the contract to extend the downswing towards $73, a support. Immediately below this is the support at $71.
In case there is a recovery from the current level, Brent futures should decisively breach the barrier at $80 to establish a sustainable rally. Resistance above $80 are at $83 and $85.
MCX-Crude oil (₹6,007)
The January futures contract of crude oil, after seeing a rally in the early part of last week, was not able to continue north as it faced a roadblock at ₹6,300.
The contract fell off the barrier at ₹6,300 and closed below the 20-day moving average after a week. This is a sign of weakness. Also, there is no support nearby.
Hence, the probability of a price drop is high. The immediate support from the current level is at ₹5,750. Below this, ₹5,500 is a strong base.
But if ₹6,300 is taken out, crude oil futures can rally to ₹6,600 or even to ₹6,800.
Trade strategy: Retain the shorts initiated at an average price of ₹6,105. Maintain the stop-loss at ₹6,350. When the contract declines to ₹5,750, tighten the stop-loss to ₹5,900. Liquidate the shorts at ₹5,550.