Crude Check: Will it retain bearish bias?

Crude oil prices, which fell in the early part of last week, recovered in the second half as the data from the US was positive. The inventories fell 7.1 million barrels for the week ended on August 12 compared to a drop of nearly 0.3 million. Thus, the Brent crude futures on the Intercontinental Exchange (ICE), which hit a six-month low of $91.5 on Wednesday, recovered to end the week flat at $96.7

Nevertheless, the dynamics surrounding the supply and demand of crude oil has been very volatile and at least in the short term, the price of the energy commodity is expected to be unpredictable.

That said, since the price of Brent crude is below the $100-mark, there exists a bearish bias and the likelihood is high for the price to soften further.

Brent futures ($96.7)

The Brent futures on the ICE closed last week almost flat at $96.7 versus the preceding week’s close of $97.9. Although there was a good recovery towards the end of the week, the contract stays below the key psychological level of $100. Therefore, our take is that the trend is bearish, and it will stay so until there is a decisive breakout of $105, which is another important level.

The contract could decline from the current levels towards the support at $86. If this is breached, it could decline to $80.

On the other hand, if the contract rallies past $100 and moves above $105, it will change the short-term outlook positive. In this case, there might be a rally to $115.

MCX-Crude oil (₹7,231)

The September crude oil futures on the MCX initially dropped to mark an intra-week low of ₹6,844 on Wednesday before making a U-turn to close the week at ₹7,231. Thus, the contract ended the week almost flat versus the preceding week’s close of ₹7,331.

Like the Brent crude futures, the MCX futures too look weak and the probability of a fall from here is high. We expect the contract to trade with a bearish bias this week. So, if it starts declining, it can probably touch ₹6,650, its nearest support. A breach of this support can drag MCX futures to the subsequent support at ₹6,300.

But it should be noted that if the contract manages to surpass the resistance band of ₹7,850-8,000, the near-term outlook can become bullish. A breakout of ₹8,000 can induce good positive momentum, potentially lifting the contract to ₹9,000 quickly. A breach of this level means the MCX crude futures’ next stop on the upside can be at ₹10,000 – a critical level.

Published on

August 20, 2022

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