Oil to Rise Above $65 After Support Holds: Technical Analysis

(Bloomberg) -- Crude oil may extend gains above $65 a barrel as an indicator of technical momentum suggests the market has rebounded after failing to break support levels last week, according to National Australia Bank Ltd. The Moving Average Convergence-Divergence oscillator on the weekly continuation chart is “a whisker away” from turning positive, said Gordon Manning, a Sydney-based technical analyst. Technical buyers usually step in when the MACD rises above its signal line, a so-called bullish crossover.“That reading says to me we’ve had the correction,” he said in a telephone interview. “We’d really spent the last three to four days rounding the bottom. There’s a very good chance the pullback is already over.”

Oil dropped to $59.52 a barrel on July 14, the lowest settlement since May 18, amid uncertainty over the prospects for a rebound in global demand. The market recovered last week to snap a four-week losing streak and is up 44 percent this year. The contract for September delivery on the New York Mercantile Exchange, which rolls to the front month tomorrow, rose 10 cents to $65.39 a barrel at 9:10 a.m. Singapore time.Prices face further upside resistance at the June 30 intraday high of $73.38 a barrel before any approach toward the $88-to-$100 area, Manning’s longer-term price target. Oil hasn’t traded above $88 since Oct. 9 last year. Technical readings, as well as fundamental indicators, currently don’t favor a rally of that magnitude in 2009, he said.To reverse the move higher, the market may have to sink further than the July 13 drop to $58.32 a barrel, which remains the lowest in eight weeks, before it will re-enter a descending channel.“We’d have to see the lows of four to five days ago get taken out,” said Manning.