As the dollar rallied, oil prices slumped last week. The Brent crude oil futures on the Intercontinental Exchange (ICE) depreciated 3.9 per cent and ended the week at $71 per barrel. Similarly, the crude oil futures on the MCX was down 4.5 per cent and it closed the week at ₹5,679 a barrel.
Brent futures ($71)
Although the Brent crude futures declined last week, it managed to stay above the support at $71. Just below this is another support at $68.50.
Notably, the support band of $68.50-71 has remained valid since August 2021, indicating that this is a considerable demand zone.
If the contract rises on the back of this, it can go up to $76, a resistance. Subsequent resistance is at $80.
But if the support at $68.50 is breached, it can lead to another leg of downtrend where the contract can decline to $60.
MCX-Crude oil (₹5,679)
The December crude oil futures declined and slipped below both 20 and 50-day moving averages. Though this is a bearish signal, considering the recent price action, the possibility of a further fall is less likely.
Over the past month, the contract has largely been oscillating between ₹5,640 and ₹6,100. So, until either of these levels are breached, we cannot be certain about the next leg of trend.
If the bears drag the contract below ₹5,640, we are likely to see the downswing extending to ₹5,500 or even to ₹5,000 in the short term.
However, if crude oil futures recover and break out of ₹6,100, it can establish a fresh leg of rally. Resistance levels above ₹6,100 are at ₹6,400 and ₹6,750.
Trade strategy: Since there is some uncertainty with respect to the next possible move, we recommend traders refrain from initiating fresh trade.