Commodity Calls

Crude oil heads towards crucial long-term support

Gurumurthy K BL Research Bureau | Updated on November 07, 2018 Published on November 07, 2018

Short-term traders can go short at current levels

Crude oil prices have been under pressure since October. The crude oil futures contract on the New York Mercantile Exchange (NYMEX) hit a high of $77 per barrel on October 3 and plummeted over 19 per cent since then. It currently trades around $62 per barrel.

On the domestic market, the contract on the Multi Commodity Exchange (MCX) made a high of ₹5,669 per barrel and reversed sharply lower in tandem with the NYMEX prices. The contract has tumbled over 20 per cent and is currently at ₹4,504 per barrel.

Outlook

The downtrend that began in October is intact. Crude oil prices are likely to extend its fall in the short term. However, a crucial long-term support is ahead which may halt the downtrend.

The NYMEX-Crude Oil ($62 per barrel) futures contract has cluster of resistance in the $65-$67 region. The upside is likely to be restricted to this zone in the near term. As long as the contract trades below this resistance region, a fall to ₹59 or $58 is likely in the short term.

The region between $59 and $58 is a crucial long-term support for the NYMEX-Crude Oil contract. Whether the contract reverses higher from this support zone or not will decide the next move.

A strong bounce from this support zone will have the potential to take the contract higher again to $65 and $67 thereafter. On the other hand, if the contract breaks below $58, the downtrend can then extend to $55 or even $53 over the medium term.

On the domestic front, the MCX-Crude Oil (₹4,504 per barrel) has an immediate support at ₹4,400. A break below it can drag the contract lower to ₹4,200 or even ₹4,000 in the coming weeks. Resistance for the contract is in the ₹4,800-₹4,900 region. The downside pressure will ease and the outlook will turn positive only if the contract breaks above ₹4,900 decisively. But such a strong upmove looks less probable at the moment.

Trading strategy

Short-term traders can go short at current levels and also on rallies at ₹4,600 and ₹4,650. Stop-loss can be placed at ₹4,750 for the target of ₹4,050. Revise the stop-loss lower to ₹4,400 as soon as the contract moves down to ₹4,300.

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

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