Double-Top Pattern and Falling Demand Suggest Crude Oil Could Trade Under $36

Posted on Posted in Commodities
crude-oil-barrels-graphic
Click to enlarge

Crude oil’s double top pattern (see chart below) is a bearish omen for future price action. Combine this technical pattern with the fundamental facts that summer gasoline inventories are climbing and oil demand for the 3rd quarter of 2016 is estimated to be two-thirds less than it was the same period a year ago (according to Barclays Bank) and the probability for a weaker energy market becomes quite high.

 

crude oil 7-25-2016 weekly chart
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So how low can prices actually go? ¬†Assuming a Fibonacci retracement of crude oil’s move off its February-2016 low @ 26.05 to its June-2016 peak @ 51.62, we get the following target support levels:

  • Fib-38.2% @ $41.85
  • Fib-50.0% @ $38.84
  • Fib-61.8% @ $35.82 (which is where we find any decent level of price support)

Barring any sharp economic recovery or geopolitical shocks, the near-term outlook for oil prices remains negative.

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