Crude oil probably is near a bottom between $67 and $68 a barrel and may rebound after retreating to its 100-day moving average, Barclays Capital analysts said.
Crude futures for October delivery on the New York Mercantile Exchange formed a “hammer” yesterday, which occurs when prices recover from a new low, Barclays said. Having completed the downward slope of a triangular pattern started in June, oil is poised for new gains, according to the bank.
“Further weakness should prove limited,” Barclays analysts Dhiren Sarin and MacNeil Curry said in a report yesterday. “The three-month triangle formation-range trade is looking increasingly mature, with the most recent decline potentially the final leg of the formation.”
Oil fell as low as $68.02 a barrel yesterday, approaching its 100-day rolling mean of $67.58 and a trend-line that connects the lowest points of the last seven months, Barclays said. It then rebounded yesterday to close at $68.86, creating a hammer pattern.
Barclays correctly predicted Sept. 1 that crude would drop toward its 100-day moving average because of a divergence between oil prices and their relative strength index.
The October oil contract has carved out an “ascending triangle” over the past three months, Barclays said. This has an upper side that starts with the peak in late June, and a lower side beginning with the trough of mid-July. The two sides are heading towards convergence.
“The shape of the multi-month range -- the ascending triangle -- and the impulsive nature of the advance from February lows indicate that the range highs should give way for a resumption of the year-to-date bull trend,” Barclays’ analysts said in the report.
If crude rises above the weekly high of $72.90 reached on Sept. 11, that would open the way for a move towards “the larger range highs at $75.27,” Barclays added. This level would pose a “significant hurdle,” the analysts said.
