West Texas Crude Oil rebounded from near $26 per barrel in early 2016 and has doubled up in almost 8 months. Initial signs of improvement in economic conditions of main consumers along with the inefficiency of Shale Oil Production below $50, are the most affecting reasons of this increase.
Now that the price has reached to the psychological levels where fundamental factors support more supply again, the most important question is that:whether or not these price levels are sustainable?
Below, we are trying to find out where the prices are heading to for the rest of the year from the technical standpoint:
As it is depicted in the daily chart below, oil had failed to break above the declining channel which has been trapped in, for more than a year since finally broke from the area shown in the gray circle ($34.62). This zone has turned to a supportive area later on, where the price has pulled back to and rebounded from, and formed a new high afterwards.
Looking more precisely to the end of the chart reveals more significant parameters worth mentioning, including:
- The price action following the break out has formed an increasing channel lines which has covered all major highs and lows forming support and resistance zones
- Price dipped to $39 after hitting the high of $51.58 on July 9th, equal to %50 Fibonacci price retracement of the mentioned rally
- Time Fibonacci of the same rally (equivalent to price Fibonacci retracement) has also retraced 50% which is quite sufficient for a corrective wave to end
- An apparent positive hidden divergence has been formed in MACD oscillator revealing another higher high is still intact in price
The above bullet points are shown in the chart below:
Adding to previously mentioned technical points on the oil chart, a reversal bullish head and shoulder pattern has been detected on the weekly chart implying that the bullish trend is still intact as the target has not been met yet. The head and shoulder target overlaps the 61.8% Fibonacci retracement of the high of $107 to the low of $26, shown on the chart below.
In case the neckline at $52.85 is broken and consolidated above, another rally has triggered with the target of $75.20 which is almost another %50 gain from these price levels. In this case, the near term resistance lies at $66.90 (%50 Fibonacci retracement high/low). Don’t forget to bear in mind that, this analysis is considered as valid as long as the support zone at $38.40 is held.
Adding to above, we remain bullish on oil. Although there are not convincing signs of global economic recovery yet, this probable upswing might be signaling an exit from the current recession in the coming future.