A deepening rout in global oil prices that has pushed Brent crude to near its lowest level in a year may run further, according to some technical analysts, even as one key indicator suggests the market is already oversold.
On pace to post a fourth consecutive weekly loss, Brentfell by more than $2 on Tuesday, extending its losses over the past four weeks to more than 9 percent at $104.39 a barrel, the lowest since early April. Brent has traded below that only three times in the past year.
While also on pace for a fourth straight weekly loss, the decline in U.S. light sweet crude futures has not been as severe, but the front contract still slipped below the psychologically important $100-a-barrel level on Tuesday, and then below its 200-day moving average at $99.92.
"The near-term downside target is $97.25," said John Kilduff, a partner at Again Capital LLC in New York, in a report on Tuesday.
Support might form in a congested area around $97.25 where the most recent reversal to upside occurred in May, said Kilduff, who added that a break of that level could send prices to the March low of $95.05.
On Brent, a drop below $105.60, confirming Brent's break below $105.98, was expected to target the $103.95 low from April 2, Reuters analyst Wang Tao wrote.
"The last two times Brent was pushed back, it held in the $103 area and if it does not hold there, you would look back to the area around $97, where it fell to in April 2013," said Walter Zimmerman, chief technical analyst at United-ICAP.
Other technical flags suggested the selling might ease sooner rather than later.
Brent's 14-day relative strength index (RSI), a technical momentum indicator watched by market technicians and analysts, has collapsed to just 23 from more than 70, well below the 30 mark considered an indication of an oversold condition. It was Brent's first reading under 30 since mid-April 2013, when prices staged a rebound from below $97 a barrel.
The WTI 14-day RSI stood at 25.8.
Intraday on Tuesday, U.S. crude dropped below $99.49, the 50 percent retracement on the rise from the Jan. 9 low of $91.24 to the June 20 high of $107.73. That $99.49 area was expected to provide some support, Tao wrote.
The rapid pullback in prices may have been exacerbated by the retreat of big hedge funds and speculators, who had built up a record net long position of 398,746 contracts in U.S. crude oil futures by June 22, according to CFTC data. That is the equivalent to nearly 400 million barrels of oil. They cut nearly 50,000 contracts over the following three weeks.
"The extent and severity of the long liquidation is made more severe because there is nobody short, nobody left to buy the next dip," added Zimmerman.
Source: Reuters
On pace to post a fourth consecutive weekly loss, Brent
While also on pace for a fourth straight weekly loss, the decline in U.S. light sweet crude futures has not been as severe, but the front contract still slipped below the psychologically important $100-a-barrel level on Tuesday, and then below its 200-day moving average at $99.92.
"The near-term downside target is $97.25," said John Kilduff, a partner at Again Capital LLC in New York, in a report on Tuesday.
Support might form in a congested area around $97.25 where the most recent reversal to upside occurred in May, said Kilduff, who added that a break of that level could send prices to the March low of $95.05.
On Brent, a drop below $105.60, confirming Brent's break below $105.98, was expected to target the $103.95 low from April 2, Reuters analyst Wang Tao wrote.
"The last two times Brent was pushed back, it held in the $103 area and if it does not hold there, you would look back to the area around $97, where it fell to in April 2013," said Walter Zimmerman, chief technical analyst at United-ICAP.
Other technical flags suggested the selling might ease sooner rather than later.
Brent's 14-day relative strength index (RSI), a technical momentum indicator watched by market technicians and analysts, has collapsed to just 23 from more than 70, well below the 30 mark considered an indication of an oversold condition. It was Brent's first reading under 30 since mid-April 2013, when prices staged a rebound from below $97 a barrel.
The WTI 14-day RSI stood at 25.8.
Intraday on Tuesday, U.S. crude dropped below $99.49, the 50 percent retracement on the rise from the Jan. 9 low of $91.24 to the June 20 high of $107.73. That $99.49 area was expected to provide some support, Tao wrote.
The rapid pullback in prices may have been exacerbated by the retreat of big hedge funds and speculators, who had built up a record net long position of 398,746 contracts in U.S. crude oil futures by June 22, according to CFTC data. That is the equivalent to nearly 400 million barrels of oil. They cut nearly 50,000 contracts over the following three weeks.
"The extent and severity of the long liquidation is made more severe because there is nobody short, nobody left to buy the next dip," added Zimmerman.
