PETROANALYSIS || ARTICLE
Will the price of oil continue to fall?
Technical analysis of West Texas Intermediate (WTI) for 2nd December 2018
Oil prices have shown a clear downward trend from October 3 to November 30, 2018. In this period the price has fallen 33%, equivalent to about $ 25.
In this context, the question is: Will the price continue to fall?
And according to the technical analysis of the price of oil, the answer to that question is simple. The price has room to fall even further.
According to the results obtained through the Bollinger Bands, the price of oil (West Texas Intermediate) has a resistance level around USD 63.75 and a support of USD 47.75 per barrel. This last value is very important in the current context and tells us that the price, which closed on Friday at USD 50.70 per barrel, still has a margin to continue falling below USD 50 per barrel and reach its support (USD 47.75 per barrel).
Another psychological element, usual in the markets, is that the fall could be accelerated once it reaches the value of USD 50 per barrel.
Another noteworthy aspect is that the gap between the closing price on 30 November (USD 50.70 per barrel) and its 250-day moving average (USD 66 per barrel) continues to widen. This gap should be reversed at some point.
The price of crude oil cut from above its 250-day moving average in mid-november, which was a clear signal of the strength of its downward trend. The wide gap between the price and its 250-day average at 30 November, US $ 66 vs. USD $ 50.70 could anticipate a correction in the mid term (1-3 months).
On the other hand, according to the Relative Strength Index (RSI), which is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of oil. This indicates that the oil is oversold. This could be an indication that at some point in the short term, the current bearish trend could be reversed. This possibility would be more likely if petroleum falls to USD 47.75 per barrel.
Finally, according to the index “Moving Average Convergence Divergence (MACD)”, which is a trend-following momentum that shows the relationship between two moving averages of a security’s price. The proximity of the two average lines at the beginning of December gives us another sign that the current trend has not yet finished and that it has some margin to follow.