Crude oil up over 3% in its sixth weekly gain; what should traders do?

It was an action-packed week for crude amid strong news flow which impacted crude oil prices harder. We saw more than 25% fluctuation in crude prices this week.

Crude oil settled on a positive note in the international markets as WTI crude settled at $120.26 per barrel and Brent settled at $121.08 per barrel.

Domestic markets also settled on a positive note at Rs 9,226 per barrel, up by 3.69%.

Oil posted a sixth weekly gain after the European Union reached an agreement for banning Russian oil imports. The EU said that it’s banning 2/3rd of imports of Russian oils and it will reach 90% by the end of this year.

Crude oil prices skyrocketed in international markets as Brent prices crossed $121 a barrel and WTI also tested $120 a barrel mark but it showed profit taking at higher levels following a report that the OPEC+ could suspend Russia from the cartel.

If the OPEC+ suspends Russia from the cartel and increases output, it could restrict crude oil prices in the international markets.

On the other hand, the decline in the US oil stocks and increased demand after easing lockdown restrictions in China, the No. 1 crude importer, is now threatening to add even more upward pressure to prices.

Looking ahead to next week, the China theme kicks off the trading week with PMI data which has been on the decline since December 2021.

From the dollar perspective, US inflation dominates the week. In addition to this, the market is keenly watching dollar index & bond yielding moves.

Crude oil prices have initially fallen during the trading week but found buyers to turn things around and show signs of life. By doing so, this suggests that we are going to see a bigger move, and I think at this point it’s only a matter of time before we get to the highs again.

If we break down the level of $112 at the bottom of the candlestick for the week, that would be negative, but not enough to get me short in this market.

What should investors do?

We may see the same kind of high volatility in the coming week. Traders should be cautious as price action on the daily chart gives bulls hope to cross off the recent swing high at $121. Fundamentals regarding the EU oil embargo on Russian oil and Russia’s potential retaliation remains uncertain.

In INR, crude June futures are looking more bullish than the international markets due to rupee weakness. Till crude oil price sustains above Rs 9,000 level, we might see prices could touch Rs 9,450 whereas if it’s not sustained at this level i.e. Rs 9,000 then we might see downside levels of Rs 8,820-Rs 8,680.

(The author is vice president for commodities at Mehta Equities)

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)

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