Crude oil prices were up for the fifth consecutive week. The Brent crude futures on the Intercontinental Exchange (ICE) was up 4.6 per cent as it ended the week at $84.4 a barrel. The MCX crude oil futures (August contract) gained 4.5 per cent as it closed at ₹6,579 per barrel on Friday.
There are no signs of weakness, and the contract is set to scale higher from here. Supporting this bullish inclination is the potential tightening in supply in the global market after Russia and Saudi Arabia cut production for August. Also, the US Fed last week hinted that there might not be a recession, boosting the sentiment.
These factors pushed the prices higher even as the drop in inventory in the US was lower than expected – according to Energy Information Administration (EIA), the inventory shrank 0.6 million barrels versus the expected 2.2 million barrels drop.
Technically too, the bull trend is intact, and the price action indicates further upside.
MCX-Crude oil (₹6,579)
The August futures of crude oil rallied sharply in the first half of the last week. Although the contract was largely sluggish in the latter half, it managed to close with a gain. There are no concrete bearish signals either.
Thus, the probability of crude oil futures moving up further is high. Substantiating this, there has been considerable long build-up over the last week as the cumulative Open Interest (OI) increased along with a rise in price. The OI went up to 10,465 contracts on July 28 as against 7,982 contracts on July 21.
From the current level, the nearest resistance is at ₹6,750, from where we might witness a corrective decline. But if the contract breaches ₹6,750, it could establish another leg of uptrend where the price might touch ₹7,000. In case the contract drops from the current level, it might fall back to ₹6,250, a support.
Trade strategy: We recommended long positions at an average price of ₹6,140 with initial stop-loss at ₹5,900. Since the price has crossed over ₹6,500, the revised stop-loss would now be at ₹6,250. Hold these longs and exit at ₹6,725.