Crude oil prices witnessed a considerable fall over the past week. Brent crude oil futures on the Intercontinental Exchange (ICE) was down 7.3 per cent by closing at $82.8 per barrel. Crude oil futures on the MCX lost 6.5 per cent by ending the week at ₹6,546 a barrel.
Brent Crude futures ($82.8)
Brent Crude futures fell off the $90-mark last week. Notably, it has closed below a trendline support and another support at $84. This has turned the probability high for further correction in price.
Nevertheless, the contract has a support at $81, which can potentially restrict the magnitude of the fall. But if this level is invalidated, the outlook can turn bearish. Nearest support levels below $81 are at $79 and $76.
We expect the contract to drop to $81 and then see a recovery, which can lift the contract back to $91.
MCX-Crude oil (₹6,546)
Crude oil futures (May expiry) depreciated and closed the week below the support at ₹6,800 where the 50-day moving average lies. It started to decline as fresh sellers arrived on the back of ₹7,000 early last week.
Considering the current price action and the downward momentum, we expect the crude oil futures to extend the downswing to ₹6,400. However, this level is a support, on the back of which there can be a recovery.
An upswing from ₹6,400 can take the contract to ₹8,000. But a breach of ₹6,400, can possibly trigger a fall to ₹6,000. Support below ₹6,000 is at ₹5,850.
Trade strategy: We recommended buying May crude oil futures at an average price of ₹6,775. Hold this trade with a stop-loss at ₹6,300 since the contract has a support ahead.
When the contract recovers and rallies past ₹7,000, modify the stop-loss to ₹6,500. On a rally past ₹7,300, raise the stop-loss to ₹7,050. Tighten the stop-loss further to ₹7,400 when the contract hits ₹7,600. Book profits at ₹7,900.