Technicals | Jun 28 2012
By Rudi Filapek-Vandyck
In many years of closely observing financial markets and reading expert views and analysis I don't think I've encountered a similar experience when experts' views in the crude oil market were as divided as they are today. On a daily basis I see reports and predictions and they range from "keep the faith, this must be the bottom" to "sell into any upticks, more weakness is around the corner". And every possible scenario in between these extremes, both on a short and on a longer term view.
It's probably an understatement to conclude that investors and analysts are divided about what to expect next.
Also remarkable is that divisions run across all possible market angles, with both experts who approach the market from a fundamental point of view and technical chartists to be found in opposing corners. It truly is a mad, mad world (or is this merely proof that, in the end, it's human bias that floats to the surface?)
One team of technical market analysts who hasn't been afraid to change its underlying view is the team at Barclays in London. After carrying a positive view throughout the first part of calendar 2012, the team switched to a bearish view last month and is sticking with that view regardless of the ever so weaker price action which is triggering predictions of a bottom elsewhere. Note also fundamental analysts at Barclays have remained constructive on crude oil all the way down.
Must be fun in the pub on Fridays after work.
Ultimately, all those fundamental analysts have to bow and do the inevitable and that is "adjusting" their price estimates in line with price action. This time around, this is going to be a painful exercise which is exactly what it looked like when analysts at JP Morgan updated their price forecasts earlier this week.
In terms of immediate prospects for the price of crude oil, Barclays chartists remain convinced the low is not yet in place for both Brent and West Texas sweet crude. Their prediction is the three months ahead will see continued high volatility and -major geopolitical crises excluded- oil futures prices should visit lower price levels still, before they potentially can rebound in the final months of the year.
The chartists' latest market update contains a compelling chart to support such view. The chart (below) shows a similar set-up for Brent futures as was the case at the end of Q2 in 2008. Back then, oil prices fell off a cliff in the subsequent three months. Barclays chartists are not anticipating a sell-off of similar magnitude, but if history repeats itself this year, their prediction is for further weakness.
All in all, the team is advising clientele to look to sell upticks against the US$100/102/bbl area for Brent and against the US$87.30/bbl area for WTI. A move below US$88 in Brent should be seen as firm confirmation of the ongoing bearish view with the next market target shifting toward US$85.80. For WTI, a break below US$77.55 is expected to shift market attention toward the target at US$75.00/bbl.
As said earlier, there are analysts, both chartists and fundamentalists, that strongly disagree with these predictions. See also Which Way Do The Gulf Winds Blow? published earlier today.
Technical limitations
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