Crude oil: Near-term dip possible, but limited

Crude oil prices are on fire over the last few weeks. The Crude Oil futures contract on the New York Mercantile Exchange (Nymex) has surged 13 per cent from $50 per barrel in early October to the current levels of $56.5. The sharp rally since October has taken the oil prices above $55 for the first time since July 2015.

On the domestic front, the contract on the Multi Commodity Exchange (MCX) has surged about 12 per cent from ₹3,300 per barrel to about ₹3,700. The recent weakness in the rupee is also aiding the rally.

Outlook

The Nymex crude oil futures contract has been inching down over the last few days. It tested $58 per barrel last week on Wednesday and has come-off from there. It is currently trading at around $56.5. Inability to bounce above $57 from current levels can push the contract lower to $55 or $54 in the near-term.

The region between $55 and $54 is a strong short-term support zone which is likely to limit the downside. An immediate break below $54 is unlikely. An eventual break above $57 can take the contract higher to $58.6 – the 200-week moving average resistance. Further break above this hurdle will then pave way for the next targets of $60 and $61. The region between $60 and $61 is a key medium-term resistance.

Whether the contract manages to break above $61 or not will then determine the next trend for it.

On the domestic front, the MCX crude oil contract is facing strong resistance at around $3,750. It is currently hovering at the 200-week moving average level of ₹3,725.

As long as the contract stays below $3,750, a fall to $3,500 cannot be ruled out. The level of ₹3,500 is a strong support and further fall below it is less probable. A subsequent upward reversal from ₹3,500 and an eventual break above $3,700, will boost the bullish momentum.

In such a scenario, the contract may gain the potential to target ₹4,000 or even ₹4,300 levels over the medium-term.

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

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