By Tsvetana Paraskova
Oil market analysts are looking into the global supply and demand picture to guess where the price of oil is heading, and opinions and forecasts always vary widely.
While oil bulls are focusing on the loss of supply from Venezuela and a potential reduction of Iranian exports to justify their view that prices will be heading higher, bears are figuring that OPEC will reverse some of the production cuts in place and bring back as much as 1 million bpd to the market to offset any supply disruptions.
Traders look at the charts and apply technical analysis to guess where prices are going and where it’s best to enter or exit positions.
One such analysis says that WTI oil prices are heading to $76 a barrel in the long term, and that the price retreat of the past two weeks is not a reversal of the upward trend, but just a temporary pullback.
According to trader Daryl Guppy, the longer-term trading band for WTI Crude is close to $76 a barrel and possibly higher. That’s roughly $10 on top of the current WTI price.
Guppy’s rationale for a continued uptrend in WTI lies in three features of the oil chart. The first is the strong support level at $43 and resistance level at $54 a barrel—a trading band of some $11. That trading band—and oil has a pattern of trading in bands—applied to an upside projection gives a trading band at $65 that has been achieved and exceeded.
“Applying the same trade band projection methods gives a long-term target near $76,” Guppy says.
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The second feature of the oil chart is the trajectory of the uptrend line that has successfully acted as a support level.
The third feature is an indicator that Guppy has developed, the Guppy Multiple Moving Average indicator that captures the inferred behavior of traders and investors by using two groups of averages—a long-term group of averages and a short-term group of averages. The long-term group shows strong and consistent investor support for a rising trend, while the short-term group of averages shows that traders are buyers whenever the price falls. This tells us that traders are also confident that the uptrend will continue, Guppy says.
In the coming days, WTI Crude faces resistance ahead of $67.20, according to Ole Hansen, Head of Commodity Strategy at Saxo Bank.
“WTI crude oil’s two-week long correction phase has seen it retrace more than half of the February to May rally. Resistance is likely to emerge ahead of $67.20/b while the downside risk will be determined by how much further funds want/need to reduce long exposure,” Hansen wrote on Wednesday.
Last week, hedge funds and other money managers cut their combined long position in Brent and WTI by 101,000 lots to 823,000 lots—the biggest one-week reduction since last August and the lowest exposure since September, Hansen noted.
Hedge funds have been scaling back their bullish bets on oil for several weeks in a row now, after having amassed a record net long position earlier this year.
The drop in the long positions and the rise in shorts could be more a sign of profit-taking after the record net long position, rather than a U-turn in the views of money managers on oil prices, some analysts and traders told the Financial Times.
Regardless of whether money managers, traders, and market analysts will be driven by technicals or fundamentals, in the next two weeks they will all be watching closely OPEC and allies, Iran and Venezuela, and U.S. production and inventories for clues about the next trend in oil prices.