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Tuesday, July 16, 2013

WTI and Brent Crude Oil charts: bulls to the fore

WTI Crude chart

WTI Crude_Jul1513

The following comments were made three weeks back in a technical analysis of the 1 yr daily bar chart pattern of WTI Crude oil: “For the last 3 months, oil’s price has made a bullish pattern of higher tops and higher bottoms. The 200 day EMA is gently rising. These are bullish signs. However, strong volumes on down days means bears are using every opportunity to sell…A convincing move above 100 can bring bulls to the fore.”

After briefly dropping below all three EMAs towards the end of Jun ‘13, oil’s price rose almost vertically and was accompanied by strong volumes. The 100 level was overcome easily and the rally seems to have stalled after touching the 107 level. A sideways consolidation has ensued between 104 and 106.

Such a sideways consolidation in a ‘flag’ pattern is usually a continuation pattern, and the eventual upward break out can take oil’s price much higher – towards 120. However, the rise has been too sharp and has taken all three daily technical indicators well inside their overbought zones.

Observant readers may notice a small head-and shoulders reversal pattern on the RSI indicator. Slow stochastic has also turned down. Oil’s price may pullback towards the 100 level before resuming its up move.

What caused the sudden rally? Was it due to the turmoil in Egypt and the likely disruption of oil supplies through the Suez? But wasn’t there an uprising two years back, when Mubarak’s government fell? Oil’s price had a big correction then!

Keep a stop-loss at 100 and stay invested. Remember that US shale oil findings are likely to add downward pressure on oil’s price.

Brent Crude chart

BrentCrude_Jul1513

The 1 year daily bar chart pattern of Brent Crude oil made a sharp up move above all three EMAs, backed by good volumes, in a spirited attempt to extricate itself from a strong bear grip. However, the rally seems to have stalled at the upper end of the resistance zone between 106 and 108.

Daily technical indicators have turned bullish. MACD is rising above its signal line in positive territory. RSI is consolidating above its 50% level. Slow stochastic has turned down inside its overbought zone. Oil’s price may try to move a little higher after the current sideways consolidation is over, but overhead resistance is expected from the zone between 110 and 112.

The gap in price between WTI Crude and Brent Crude has narrowed considerably since Feb ‘13 – thanks mainly to the strengthening of the US Dollar against the Euro.

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