Crude Oil has had a rocky but positive 2016. Especially when you compare it to the disastrous year in 2014 and the bad year of 2015. With one month left, crude oil is up over 100%. A stock analyst might caveat that by saying it had ‘easy comps’. It has been a long time since oil has seen anywhere near the triple digits that were pervasive from 2011 to midway through 2014. So what does the future hold for Jethro’s Black Gold or Texas Tea? It seems to be walking The Line.
The chart below explains this. From 1999 until midway through 2015, crude ran through 2 massive run ups. The first took it from about $11 per barrel up to a high of over $147 in 2008. The second was not so high or as steep a climb, but touched $115 before retreating. And each time, as well as a couple of other times along the way, the price magically found support and buyers came in at the same line connecting the lows. For 16 years the line held.
Then in 2015, it finally broke down through the line and continued lower. From December 2015 into January 2016, support started to kick in as buyers bought intra-month lows. The Tweezers Bottom that resulted was followed by a move back higher. That low came at the Potential Reversal Zone (PRZ) of a bullish Bat harmonic pattern and a price point that had historically seen a lot of oil changing hands. Suffice it to say, many had a vested interest at the price level where it reversed.
The Bat reversal looks for a move back higher to at least $63 and possibly $95 per barrel. Momentum indicators are improving as it has moved higher. The RSI is now near the mid line on its run higher. The MACD has also crossed up and is rising, nearing a move to positive. Both support more upside price action in crude oil. But then, there's the line. That same line that acted as support for 16 years is now acting as resistance, preventing the price of crude oil from moving higher.
The Line will continue to play a role in the price oil in the near term. A push over that line and the major targets will be $63, $79 and then $95 per barrel. A failure to break the line and rejection lower will raise calls for a revisit to the $25-$35 range. My money is on the former, but with risk managed if I am wrong.