Crude oil made a strong recovery in the second half of last week, leading to a weekly gain. The Brent crude futures on the Intercontinental Exchange (ICE) appreciated 2 per cent as it ended the week at $76.3 a barrel. The MCX crude oil futures (July contract) was up a marginal 0.2 per cent and closed at ₹5,877 per barrel on Friday. Thus, the crude oil contracts have snapped a two-week losing streak.
The optimism was triggered by data from China last Thursday which showed that the country’s oil refinery throughout rose 15.4 per cent in May from a year earlier. The rate cuts from the biggest oil importer also aided in recovery.
In addition, the dollar weakened, supporting the upward movement in price. The dollar index lost 1.4 per cent last week.
Technically, the bounce has happened on the back of a good support. Expect the upside to extend this week.
MCX-Crude oil (₹5,877)
The July futures of crude oil declined sharply last Monday. But as we expected, the support at ₹5,600 arrested the fall. The contract then recovered from this support.
As the price rallied, the cumulative Open Interest (OI) of crude oil futures on the MCX dropped to 10,758 contracts on Friday compared with 17,961 contracts by the end of the preceding week. This shows considerable short covering.
We expect the rally to continue this week where the contract is likely to move to the resistance band of ₹6,100-6,200. A breakout of ₹6,200 can lead to an upmove to ₹6,500. Resistance above ₹6,500 is at ₹6,800.
On the other hand, if there is a fall from the current level, the contract can find support at ₹5,770 and ₹5,600. But note that if the support at ₹5,600 is breached, the outlook will turn bearish. Support below ₹5,600 are at ₹5,500 and ₹5,280.
Trade strategy: Retain the buy initiated at ₹5,600. But tighten the stop-loss from ₹5,480 to ₹5,700. Book profits at ₹5,980.