Crude oil, despite the sell-off towards the end of last week, closed with a gain as it had rallied mid-week. Therefore, the Brent crude futures on the Intercontinental Exchange (ICE) closed with 2.2 per cent weekly gain at $75.8 a barrel. Likewise, the MCX crude oil futures (June contract) was up 2.1 per cent for the week as it ended at ₹5,929 per barrel on Friday.
Nevertheless, the overall bias remains bearish. The decline in prices in the second half of last week was because of a pause in talks with respect to the US debt ceiling. Unexpected increase in crude oil inventory in the US also weighed on the oil price. According to the Energy Information Administration (EIA) data, crude oil stocks in the US increased by 5 million barrels versus an expected drop of 1.5 million barrels. Moreover, the demand concerns still prevail, weighing on the energy commodity.
While the fundamental factors are not so encouraging, the charts too do not give us confidence. Below is the technical analysis.
MCX-Crude oil (₹5,929)
The June futures of crude oil rallied and marked an intraweek high of ₹6,100 on Friday. However, the contract was unable to sustain above the crucial ₹6,000-mark and it fell to close the week at ₹5,929. The cumulative Open Interest (OI) of future contracts indicate short covering last week as it dropped to 11,331 contracts on May 19 versus 19,042 contracts on May 12.
However, as long as the barrier at ₹6,000 holds, the bears will have an upper hand. The contract will possibly fall from the current level to retest ₹5,625. If this level is breached, it will open the door for a steeper fall to ₹5,000. Notably, there is a support at ₹5,500 and thus, ₹5,500-5,625 can be a support band.
On the other hand, if the contract breaks out of ₹6,000, we might see a rally to ₹6,500.
Trade strategy: The hurdle at ₹6,000 stays valid and the risk-reward ratio favors short positions. Because of these two reasons, traders can short crude oil futures now at ₹5,929. Short more if the price moves up to ₹6,030. Place stop-loss at ₹6,125.
When the contract slips below ₹5,740, tighten the stop-loss to ₹5,900. Book profits at ₹5,650.