By Barani Krishnan
NEW YORK (Reuters) - The strong rally in oil prices that sent Brent and U.S. crude above $50 a barrel for awhile on Thursday faces technical barriers in the next three to five weeks.
Unexpected oil supply outages, along with technical buy signals, have helped lift Brent and U.S. crude prices nearly 90 percent above 12-year lows hit earlier this year.
Analysts believe the market has now factored in most supply cuts. Two technical analysts on Thursday said oil's advance will be limited to a few more dollars at most. One was more bullish.
Brent futures (LCOc1) hit $50.51 on Thursday, after sinking to $27.10 on Jan. 20, which was the lowest since July 2003.
U.S. West Texas Intermediate (WTI) futures (CLc1) touched $50.21 on Thursday, up from $26.05 on Feb. 11, which was the lowest since May 2003. [O/R]
Both benchmarks retreated from session highs and settled below $50 a barrel.
Matthew Sferro, technical analyst at New York's Informa Global Markets, said he expected Brent and WTI to come under stronger pressure if they rose another $3 to $4 a barrel.
He said momentum should underpin oil's move, but noted that technicals will put those looking for more gains on the defensive before long.
"The bearish rising wedge in crude is clearly seen on the chart and could trigger a structural shift favoring bears for the subsequent three to five weeks," Sferro said. A rising wedge is a bearish pattern where a trading range narrows as prices rise.
"I would be surprised to see much more of an initial decline in this direction, especially considering the current bullish underlying momentum," Sferro added.
Brent's first significant hurdle, or "equality target", would be at $51.73, he said. Stronger resistance for Brent will be at $54.32, the intraday high reached on Aug. 31, Sferro said.
Fawad Razaqzada, technical analyst at City Index in London, also sees initial resistance for Brent at around $52, or the "top of its bullish channel". A stronger barrier will be at $53.35, he said.
One technical analyst was more bullish.
David Thompson, chartered market technician and executive vice president at commodities-focused broker Powerhouse in Washington, said Brent will not face technical resistance until it hits $60.89. He based this on a 38 percent retracement of the decline that took oil from its May 2014 high of $115.71 to this year's low of $27.10.
"Remember, everybody was convinced this market would stall when we got above $40," said Thompson. "If they were right, we wouldn't have got here."