Oil to Trade in $48-$50 Range, Move to $60: Technical Analysis

(Bloomberg) -- Oil’s 3.7 percent fall last week signals crude may settle in the $48 to $50-a-barrel range before rising to as much as $60 a barrel by the end of the year, according to Global Investment House KSCC.“Oil is still above the 11-week moving average and it’s consolidating,” Raed Diab, a technical analyst at Global Investment House, said in a telephone interview April 16. “Fundamentals are playing a role and that’s why it’s trading in a tight range.”Crude stayed above the 11-week moving average of $48.75 last week, indicating investors may continue buying the commodity. The 11-week moving average represents a medium-term indicator of price levels and investor behavior.

The next level of resistance is $54.60 a barrel, near this year’s intraday high set at the end of March, Diab said. Breaking that resistance could mean oil investors may target prices as high as $59 or $60 a barrel, representing levels last reached Nov. 14, Diab said.Oil shed two-thirds of its value in five months last year as demand evaporated, leading the Organization of Petroleum Exporting Countries to cut supply to stem the price slide.Crude reached a high of $147.27 in intra-day trading on July 11 and fell as far as $32.40 on Dec. 19. Oil has recovered this year, reaching as high as $54.34 on March 26, before retreating to $50.33 April 20.

Prices at $59.51 a barrel would be a 23.6 percent recovery in the five-month slide in crude, reaching a threshold from the ratio between numbers in the Fibonacci sequence. The ratio, sometimes known as the golden mean, is used to find points of support or resistance as prices retrace rallies or declines between previous high and lows.“There is strong support at $47.30,” the analyst said. The next support levels are $43.60 a barrel and $42.50, he said, adding that he sees oil trading in a range between $48 and $50 a barrel.Support levels indicate prices below which investors bet a commodity or stock may not fall, while resistance indicates a level at which investors may sell a security or commodity.