Crude oil prices slumped last week on weak demand reported by the Energy Information Administration (EIA). The Brent crude futures on the Intercontinental Exchange (ICE) tumbled 6.5 per cent as it closed the week at $75.1 a barrel. Likewise, the MCX crude oil futures (May contract) fell 7.1 per cent for the week as it ended at ₹5,841 per barrel on Friday.
According to EIA data released last week, the demand, especially for gasoline, declined significantly on a weekly basis. That is, it dropped by nearly 900,000 barrels per day, which is a little over 9 per cent. This led to a sharp fall, especially until Wednesday.
On the other hand, the data showed a drop in inventories for the third straight week — it declined by 1.3 million barrels as against an expected reduction of 0.5 million barrels for the week ending April 28. However, investors were more concerned about the demand for the energy commodity and thus, the prices were under pressure for most part of the week.
MCX-Crude oil (₹5,841)
The May futures of crude oil breached an important support at ₹6,000 and dropped to mark an intraweek low of ₹5,545 on Thursday. But then, it recovered to close at ₹5,841. That said, we cannot reject the possibility of another leg of downtrend from here, which can possibly drag the price lower to ₹5,500 – an important support. A drop below this level is less likely. However, if it happens, we might see the price tumbling to ₹5,000.
Nevertheless, we expect the support at ₹5,500 to hold, against which the contract could see at least a short-term recovery. As it stands, the chance of a rally is higher as the contract is hovering near a base. The resistance levels above ₹6,000 can be seen at ₹6,270 and ₹6,500.
Trade strategy: The stop-loss for the long position at ₹5,900 was hit last week. As the risk-reward ratio is unfavorable at the current level, we suggest staying out for now.
Consider long if the contract dips to going ₹5,500. Place stop-loss at ₹5,200. Exit those longs when the price recovers to ₹6,000.