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WTI Crude Oil Price Forecast: A Year-End Present For Bulls?

WTI Crude Oil Price Forecast: A Year-End Present For Bulls?

2015-11-20 14:45:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

  • Crude Oil Technical Strategy: Price Rests on Trendline Support, Next Move Key
  • Inability To Gain Traction Below $40 Worries Bears
  • Sideways Price Action Favors Brack Breakout Approach

This week, WTI Crude Oil has broken below $40bbl, but not by much. On Wednesday and Thursday, Oil came within the August 24th range of $40.45 and the YTD low in oil (and many other assets) of $37.73 but was unable to gain traction on the downside. Unfortunately for the bulls, the reasons Oil is at $40 has not abated. The US Dollar, which is inversely correlated to Oil, remains strong. Many OPEC members continue to overproduce, which is bringing down the equilibrium price because demand remains weak and today, we get the Baker Hughes weekly U.S. rig count that could tell us if the production is continuing to build. A validation of more rigs on the market would add to pressure on Oil Prices that first dropped below $40 this week on news that stockpiles rose to 487.3 million barrels last to the highest levels on record going back to 1930. However, the technical picture looks more encouraging for now.

Even though price continues to trade near a 6-year low and within the price range of August 24th (YTD Low), the drop appears to be stalling. Looking at the Oil price chart below, the markets looks to have found a temporary, if not longer price support floor near $40. At the very least, you can see that the downtrend in price has failed to gain bearish momentum. The stall near $40 helps us to see that the next significant price move from $40 will be significant whether a break higher or lower. We noted key levels as per Fibonacci ratio analysis of the Fibonacci Expansion from October & November extremes on WTI / Crude Oil at 40.00 and the 78.6% Fibonacci retracement of the August-October range at 40.478. If the current weekly low of 39.87 can hold, we can look to the weekly high of $42.22 as resistance to be taken out to give the first validation that December may be a favorable month for Crude. Beyond the short-term resistance of $42.22, the opening range high for the week, theOctober 27th low of $42.57 will be in focus. Any traction above those levels should favor at least a bounce to at least the mid-$40s.

Signs of life for the bulls is not the same as a buying opportunity, just yet. Times like this can show the validity and assistance of Technical Analysis to traders in any market. In other words, the price is never so low that it’s a good buy. If a market falls 98%, and you buy, and the market then drops to 99% down, you lost 50% of your investment. In other words, we don’t want to fight momentum or swim against the tide. If the tide is turning technical analysis can help us gauge the validity of the turn and the levels on Crude to help validate that would be the weekly opening range high to start followed by the October 27th low. T.Y.

We hope you enjoyed this short-term Oil Outlook, be sure to sign up for our free oil guide here.

WTI Crude Oil Price Forecast: A Year-End Present For Bulls?

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