Ross Woodfield
Blackwell Global Investments Limited
Oil markets have been a major talking point for many in the markets recently as the price of a barrel of crude hits a level not seen since June 2012. The fundamentals haven’t changed too much, but a technical intraday double bottom could signal a pull back towards the high $80s.
The recent down trend has been the result of concerns over the state of the world economy and a potential slowdown in global growth. There has also been a glut of supply on the world markets as countries like Russia and Libya look to prop up their economies with foreign earnings.
The biggest change in fundamentals has been the announcement that Saudi Arabia cut supply in September and will likely continue to do so in order to try and stem the falling oil price. This could prop the market up in the short term. The USA is on track to become the world’s largest oil supplier next year, so fundamentally not too much will change in the oil markets and supply will still remain strong. But over the next few days we could see a nice pull back in the price.
The neckline of the double bottom on the H4 oil chart looks to have acted as support first, and now resistance and it is likely to be tested again at some stage in the short term. If this pattern does play out we can expect to see a breakthrough and a pullback to the neck line. From there we should see a strong movement up that is likely to be $4.16 up from the neckline with a target at $86.60. This is our target as the width of the structure is $4.16 from top to bottom.
A breakout is likely to find resistance at 83.71, 85.18 and 86.28. If we see further consolidation in the price, look for support at 81.48, 80.20 and 79.13. If this is the case the double bottom structure will be invalid and a pennant will potentially form which could signal a continuation of the bearish trend. So it will pay to keep an eye on this and see how it plays out.
A slight cut in global supply and a double bottom on the intraday oil charts could signal a short term reversal in the price of a barrel of crude oil.
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