Crude oil rode on the optimism backed by the potential Chinese demand after loosening the Covid restrictions and also the expected slowdown in the pace of interest rate hikes, particularly by the Fed. This led to the energy commodity posting a weekly gain for a second consecutive week.
The Brent crude futures on the Intercontinental Exchange (ICE) was up 2.8 per cent as it closed at $87.6 a barrel. Similarly, the MCX crude oil futures (February contract) appreciated 1.9 per cent as it closed the week at ₹6,620 per barrel.
That said, concerns regarding recession and its impact on the global crude oil demand remain, limiting the gain in prices. Overall, the oil market is expected to be in surplus in the first half which is likely to thin out in the second half of the year. Therefore, in the near term, there could be some downward pressure which can cap the gain if not trigger a fall.
Brent futures ($87.6)
The Brent futures, which gained 2.8 per cent, has now rallied to a key resistance band of $88-90. A breakout of $90 can turn the near-term outlook positive which can lift the price to the critical $100-mark. On the other hand, if the price falls off the barrier, it can find immediate support at $82. Subsequent support is at $78.
MCX-Crude oil (₹6,620)
The February futures of crude oil posted a weekly gain of 1.9 per cent by wrapping up the week at ₹6,620 as against its previous week’s close of ₹6,497. Notably, it made a high of ₹6,728 mid-week. Nevertheless, until the resistance at ₹6,750 holds, the bears have a chance to take control back.
However, if the contract goes past ₹6,750, we will most probably see a rally beyond ₹7,000, possibly to ₹7,500 as the short-term outlook will turn positive. But if there is a fall from the current level or after touching the ₹6,750 resistance, the contract might fall to ₹6,150 – a support. Subsequent support levels are at ₹6,000 and ₹5,600.
Trading strategy: A couple of weeks ago, we recommended taking short positions. The average selling price is ₹6,275 with stop-loss at ₹6,750. Hold these shorts as the contract stays below the ₹6,750 resistance. But there are some revisions in target and stop-loss levels.
Going ahead, revise the stop-loss down to ₹6,500 when price falls below ₹6,150 and exit all the shorts at ₹6,000.