Crude oil prices likely to reverse higher



Crude Oil price has been getting a breather in the last few days after falling sharply since mid-April. The Crude Oil futures contract traded on the New York Mercantile Exchange (NYMEX) had plummeted over 18 per cent from $53.75 per barrel in April to record a low of $43.76 per barrel on May 5. However, the contract has reversed higher again from this low and the prices are now poised at $46.60 per barrel.

On the domestic front, the Crude Oil futures contract on the Multi Commodity Exchange (MCX) plummeted over 23 per cent and has been reversing higher from its low of ₹2,839 per barrel in the last few days. It is currently trading at ₹3,006 per barrel. Technically on the charts, the recent reversal in the crude oil prices is significant. It suggests that the oil prices could head higher in the coming weeks.

Outlook

The WTI Crude Oil prices has been moving in a channel since April 2016. The recent bounce from the low of $43.76 has happened from the channel support level of $43.60. The region between $43.60 and $43.35 is a crucial support. The prices will come under more pressure only if it declines further below $43.35. As long as the contract sustains above the $43.60-$43.35 support zone, the channel movement will remain intact. In that case, there is a strong likelihood of seeing a rally to $53 and $55 levels once again in the coming weeks. Intermediate resistance is at $50. A strong break above this hurdle will pave way for the targets of $53 and $55.

As mentioned above, the outlook will turn negative only if the contract falls below $43.60 decisively. The ensuing target on such a fall will be $39.

On the domestic front, the MCX-Crude Oil has resistance at ₹3,250 which is likely to be tested in the near-term. A strong break above it can take the contract higher to ₹3,500 or even ₹3,700 levels thereafter. Inability to break above ₹3,250 may trigger a pull back move to ₹2,800. The region between ₹2,800 and ₹2,780 is a crucial support for the MCX contract. The outlook will turn negative only if it fall below ₹2,780 decisively. Such a fall will increase the possibility of the contract testing ₹2,500 or even lower levels thereafter. But since the outlook for the WTI contract is relatively stronger, a break below ₹2,780 on the MCX contract is less likely.

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

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