Crude oil saw its prices fall on the back of the persisting demand concerns. The Brent crude futures on the Intercontinental Exchange (ICE) declined 1.2 per cent as it closed the week at $74.2 a barrel. Likewise, the MCX crude oil futures (June contract) fell 1 per cent for the week, as it ended at ₹5,805 per barrel on Friday.
While the demand continues to be a worrying factor, there was an unexpected increase in the inventory in the US. That weighed on the prices of the energy commodity. Latest data by the Energy Information Administration (EIA) showed that the crude oil stocks in the US went up by 3 million barrels as against the market expectation of a drop by 2 million barrels.
While the fundamentals are not encouraging, the charts too do not show any respite as the contracts continue to trade below key levels.
MCX-Crude oil (₹5,805)
The June futures of crude oil rallied in the first half of last week and marked an intraweek high of ₹6,075 on Tuesday. But after trading above ₹6,000 briefly, the contract declined and ended the week at ₹5,805. The recent trend has been bearish and thus, the likelihood of further fall from the current level looks high.
The nearest supports can be spotted at ₹5,500 and ₹5,000. Note that ₹5,500 is a substantial support and we expect this level to arrest the fall unless some significant developments impact the prices. So, going ahead, we might see a drop to ₹5,500 and then a recovery to ₹6,000. If ₹6,000 is breached, the upside might extend to ₹6,250 or even to ₹6,500.
On the other hand, if ₹5,500 is taken out, we might see a quick drop to ₹5,000. A breach of this support can be a trigger for another leg of deeper downtrend, possibly to ₹4,600.
Trade strategy: The probability of a fall looks high. But the risk-reward ratio is unfavourable for fresh shorts. Therefore, we suggest staying out for now.
On a fall to ₹5,500, the risk-reward will turn favourable for the bulls. So, consider going long if the contract dips to ₹5,500. Place stop-loss at ₹5,200. Exit those longs when the price recovers to ₹6,000.