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Crude oil prices soared in the first half of last week on the back of a weak dollar. However, in the latter half, the price fell sharply. Nevertheless, it managed to end the week with a gain.
The Brent crude futures on the Intercontinental Exchange (ICE) was up 3.4 per cent as it closed the week at $75 a barrel. Whereas the MCX crude oil futures (April contract) gained 2.6 per cent as it ended the week at ₹5,728 per barrel.
That said, the broader trend remains bearish. We anticipate the sell-off, which occurred in the second half of last week, to continue this week too.
Major reasons behind the fall in the last two sessions were an increase in the inventories in the US and a sharp sell-off in the banking stocks on the back of lingering concerns over this sector in the west.
According to the latest data by the Energy Information Administration (EIA), the crude oil stocks in the US, for the week ended March 17, shot up by 1.1 million barrels as against the expected drop of 1.7 million barrels. This weighed on the prices.
MCX-Crude oil (₹5,728)
The April futures of crude oil made an intraweek high of ₹5,903 before closing lower at ₹5,728. This was in line with our expectations and last week’s upswing is likely to be a corrective rally.
While still there is a chance for the contract to move up towards the price band of ₹6,000-6,150, it will eventually resume the downtrend. Note that a decisive breach of ₹6,150 can potentially lead to a rally to ₹6,500. But that looks unlikely as it stands.
A fall, either from the current level or after moving to the price region of ₹6,000-6,150, can drag the contract to ₹4,850 – a support. Below that lies a significant support at ₹4,550. Thus, the price area of ₹4,550-4,850 is a broad demand zone from where we might see a rebound in price.
Trade strategy: Last week, we suggested going short if the contract moves up to ₹5,800. This would have been triggered on Tuesday. Retain this trade. Add more shorts in case the price goes further up to ₹6,000. Keep stop-loss at ₹6,300 at first.
When the price slips below ₹5,500, tighten the stop-loss to ₹5,850. Further, when the contract goes below ₹5,200, alter the stop-loss to ₹5,550. Book profits at ₹4,850.
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