Crude oil prices have regained momentum over the last few weeks. After witnessing a corrective fall all through the month of August, crude oil prices have reversed sharply higher and has been on the constant surge since the beginning of this month. The Crude Oil Futures contract on the New York Mercantile Exchange (Nymex) tumbled about 10 per cent in August from a high of $50.4 per barrel to a low of $45.5. However, the prices have reversed sharply higher from this low and is trading on a strong note at around $52/barrel.

On the domestic front, the crude oil futures contract on the Multi Commodity Exchange (MCX), fell 9 per cent from its high of ₹3,234 per barrel to a low of ₹2,935 last month. However, the contract has reversed sharply higher from this low in tandem with the global oil prices and is currently trading at ₹3,433.

Outlook

Crude oil prices are likely to extend its rally in the short-term. The Nymex contract has a strong support in $50.5-50 region which is likely to limit the downside in the near term. Immediate resistance is at $52.7. A strong break above this can take the contract higher to $54 or $55. The region between $54 and $55 is a crucial resistance zone.

A strong break above $55 can boost the momentum. Such a break will increase the likelihood of the contract rallying to $60 over the medium term. On the other hand, inability to break the $54-55 resistance zone and a pull-back thereafter can drag the prices to $50 again.

The MCX Crude Oil contract has risen breaking above the key ₹3,200-50 resistance zone in the past week. This region may now act as a good support for the contract in the near term. A rally to ₹3,700 or ₹3,750 is likely in the short-term. A strong break above ₹3,750 will increase the likelihood of the rally extending to ₹4,000. But a pull-back from ₹3,750 can drag the contract lower to ₹3,250 or ₹3,200 again.

Traders with a medium-term perspective can make use of dips to go long at ₹3,350. Stop-loss is placed at ₹3,125 for the target of ₹3,700. Accumulate longs near ₹3,250. Revise the stop-loss higher to ₹3,450 as soon as the contract moves up to ₹3,525.

Note: The recommendations are based on technical analysis and there is a risk of loss in trading.

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