Article / 26 May 2016 at 12:30 GMT

$50/b oil not significant, according to the chart

Technical Analyst / FuturesTechs
United Kingdom
  • Brent crude hit $50/b overnight, and WTI reached just shy of that
  • Round numbers are sometimes significant, but not this time, the charts show
  • Aug-Oct 2015 oil recovery failed, as did another push through $50 in early November
  • $50.91/b is more important than $50 for Brent, and above that $54.05-32 a big area
  • Brent is travelling higher in a channel, with resistance at $51.57/b

oil barrels
 A $50 barrel of oil is less of an event than you thought. Photo: iStock

By Clive Lambert

"Oil hits $50"
scream the headlines. The headline makers of the financial world have been waiting for this one for a while. They are the same people who only a few months ago were getting excited about oil hitting $20/barrel.

WSJ headline
                                                                                         — Wall Street Journal, May 26, 2016

Brent crude (July '16) hit $50/b overnight. US crude printed $49.97/b before finding sellers, so cruelly played a game with the headline makers yesterday.

As a technical analyst, I do sometimes take note of round numbers as there's obviously something "psychological" about hitting these numbers. But quite often previous price action and the current chart tell me "forget it" and that there's more important levels to worry about, and this is one of those times. I've been telling my clients for days now that oil will likely hit $50, but don't get excited about this being an "event" as far as the chart is concerned.

In fact, one of the reasons I'm saying this is because we saw a recovery last year in August through to October. And where did this stop and reverse? The August high was $54.32/b but that was soon given back, and we had another go through $50 in October which failed at $54.05/b. Then one more push in early November failed at $50.91/b.

So $50.91/b is more important than $50.00 for Brent, and above that $54.05-32 looks like a big area. We are also travelling higher in a channel, and today this channel has resistance at $51.57/b, so there's another reference level above that looks to be more important than $50.

July '16 is also the front-month WTI crude contract (benchmark in the US), and, as I said above, it fell just shy of the headline-grabbing $50 overnight. Again if we look back to the last time WTI was up here (WTI didn't perform as strongly as Brent on last year's attempted recovery trades), we see that last October's high was $50.92/b. So it got through $50 last October, got everyone excited, then promptly reversed, and with a few days it was trading down in the $47s, and it's taken nigh on eight months to get back here (via a low at $26.05/b).

Brent daily continuation showing the channel and last year's highs
Brent Daily
Source: CGQ Inc 

Brent weekly continuation - Says price can go to $60.95/b
Brent Weekly
Source: CGQ Inc 

WTI daily continuation
WTI Daily
Source: CGQ Inc
WTI weekly continuation - Fibonacci target is $58.97/b
WTI Weekly
Source: CGQ Inc

— Edited by John Acher

Clive Lambert is chief technical analyst at FuturesTechs


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