Where is the oil price heading?
Chart of the Week 26 Feb, 2010
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West Texas Intermediate Crude Oil – US$79.75/bbl
More volatility ahead
The price for oil spent 30 years oscillating between $10 and $40 creating a significant base for higher prices. We saw this come to fruition with the upward spiral to $145 by July 2008. At this level, the combination of overspent momentum and the close proximity to a target resulted in a price collapse back to the base, dipping to $31 by December of that year. In an equal momentum reaction the price reversed and has climbed back into the $80-90 resistance zone.
The near-term momentum has begun to roll suggesting that the price may continue its churning within the $70-80 range with the possibility that increased volatility may see the price experience wider swings. A drop below $70 would indicate a fall towards the lower guidelines of the phase located around $58 and a rise above $80 would signal a test of the $90 upper barrier. The entire action from the initial breakaway from the base in 2004 forms part of a large diamond pattern which continues to reflect market uncertainty.
While the price swings within the final oscillations, the outcome is indecisive but the odds at this stage favour a positive resolution on a rise through $92 – although this may take some time.
The danger while the phase continues would be for a downward break on a price fall through $50.
