The crude oil has gained almost 30 percent over the last four months. Much of this gain is due to renewal of the OPEC members’ deal on production cut which seems to be continued until 2018.
Saudi Arabian anti-corruption purge along with tensions in the Middle East with Iran, one of the most influential members of OPEC, are bidding prices up, due to some analysts. Whether or not the Saudi crackdown on corruption aided the rise in the price of oil, prices hit highest level since 2015 and it seems geopolitics coupled with Venezuelan debt default risk have been behind the multi-year push. The crude ended around 2% higher for the last week, up a fifth-straight week.
However, we are getting close to a seasonally weak period for energy products, and US production is always another factor just around the corner, leaving risk to the downside, rather than the upside.
Technically, price has successfully broken the key technical supply zone of $55.40, equivalent to 2016’s December high. Although the energy market has started a silent week, fluctuating in a tight range so far, it seems that the recent sharp move needed some breath to step back into its previous upward path. As it has been demonstrated below, the so-called zone was the bullish mid-channel line which has been turned to a major near term supportive area.
The Fibonacci Expansion drawn on the chart shows the first target we expect to hit in near future at around $59 – $60. Moreover, this zone is overlapped with the 127.2% Fibonacci Extension ratio. It is worth considering that $60 is a tough and solid resistance as the 38.2% Fibonacci retracement from the 2013-2016 high to low is overlapped.
Please take into account that the corrective wave from $55 to $41 has retraced 50% of the rally from 2016 low to high, therefore, the main target for this rally is predicted to be around $69.
Adding to above, we believe that the way is open to head towards our positive targets that begin at $59 and extend to $60.65 as initial targets. Noting that holding above $55.40 represents the first condition to continue the expected bullish trend.
On the other hand, potential downside corrective targets for the crude oil are located $52 and $49, respectively after a successful penetration below $55.40.