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Oil Rally Set to Go Above $85, BarCap Says: Technical Analysis

Crude oil’s four-week rally hasn’t run its course and prices will reach at least $85.55 a barrel in New York, according to technical analysis by Barclays Capital.

Oil has advanced nearly 6 percent this year to more than $83 a barrel as plummeting temperatures around the world stoked demand for heating fuels. Crude will gain as prices extend a “sling-shot” pattern of rises and declines in place since last summer, according to the bank.

Oil’s drop on Jan. 7. was “a rest following the recent 10- day streak of higher consecutive closes,” Barclays analysts including New York-based MacNeil Curry said in a report.

“Bigger picture, the absence of a clear trend-ending scenario suggests that this is ultimately a corrective move before the sling-shot uptrend resumes and oil tests the $85 to $85.50 area,” Curry said.

The sling-shot formation identified by Barclays begins with a low of $59.69 a barrel on July 13, with prices then rising to $75 on Aug. 25 and subsequently tumbling to $66.02 on Sept 25. The pattern resumes its upward path from late September to mid- October, then falls from $82 on Oct. 21 to below $70 on Dec. 14, before starting the latest, upward part of its trajectory.

Crude futures last traded for $83.66 per barrel on the New York Mercantile Exchange as of 1:22 p.m. London time. If prices start falling, they will encounter support from oil’s 50-day moving average around $78 per barrel, according to Barclays.

A drop below this level “would lead to a much deeper correction as recent longs begin to head to the exits,” said Curry.

Source: Bloomberg.com