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WTI Crude Oil Price Forecast: To the 2008 Low & Beyond?

WTI Crude Oil Price Forecast: To the 2008 Low & Beyond?

Tyler Yell, CMT, Currency Strategist

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Talking Points:

WTI Crude Oil took a hint from the rest of the market after the Federal Reserve surprised the world with a hawkish forecast, which brought the US Dollar higher. As of mid-day Thursday, we are still above Monday’s low of $34.51/bbl, which is also channel support and near the 161.8% Fibonacci expansion support, but a further breakdown could be on the horizon. Today, WTI Crude Oil traders have two worries on their hands that need to be resolved before a significant move higher develops. First, the supply glut remains as the recent move from OPEC to maximize output, which they’re successfully doing will continue to put pressure on the price of oil as well as higher cost producers with weak balance sheets to the point many may be forced out of business. Secondly, the Federal Reserve may have unintentionally extended the longest slump in commodity prices by given the market little reason to sell US Dollars. Within that dynamic, the environment would favor a continued move toward 2008 intraday and closing lows.

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With WTI Crude Oil now down 35% YTD, appropriate fears of new 15-yr lows are surfacing. Today’s ~2.5% fall is likely a sign of what’s to come as US Dollar strength appears ready to take US Dollar Index toward new highs after holding the 100-DMA. For now, the August 24 low of $37.73 is resistance, and until price closes above that level, the downside is favored. The price targets lower below Monday’s low of $34.50/bbl are the 2008 extremes. $32.40 on December 19 was the intraday low for the year, and $33.20 was the closing low on December 18. The intraday low also aligns with a Fibonacci expansion target, and USD strength may take us there in a hurry. The intermediate level between Monday’s low and the 2008 extreme is the February 12th, 2009 extreme of $33.50/bbl.

The warning that oil may continue to fall even lower as inventories swell remains appropriate and the pressure does not appear ready to let up anytime soon. From a sentiment perspective, our internal readings are showing an SSI reading of +2.4062.We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are long provides a signal that the US Oil may continue lower. This trend lower in US Oil will remain in place as price trades below resistance of the August 24th low of $37.73/bbl, and we’ll keep an eye out on the 2008 extremes.


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