United States Oil Fund LP (ETF) indicates that the short term upside in crude is capped, according to one top trader, who has a record of correctly forecasting the commodity’s price action.
Crude oil has impressively risen since hitting a low of $26 a barrel in February. But Todd Gordon of TradingAnalysis.com reckons that given the current technical layout, prices are unlikely to scale $50.
United States Oil Fund LP (ETF) Paints Bearish Crude Picture
Gordon uses the United States Oil Fund LP (ETF) to determine the demand-supply scenario in crude. And his analysis suggests that two counter trend indicators are hinting at an imminent decline in price.
“The rally that we have seen into the 200 period moving average has been $20.40…(which is) the total traveled distance from the $26 low to current price,” the analyst said on CNBC. “Notice the distance traveled in the prior counter trend swing – $20.55. So we have some very interesting symmetry here.”
To add to the bearish outlook is the retracement in the weekly charts that point to a strong resistance around the $48-$50 zone.
“This is your textbook retracement…the 61 percent retracement of the July decline down to the $26 low,” Gordon added. “That 61 percent retracement is going to fall in at $47.70…(as such) we have a mountain of resistance between $48 and $50 in crude oil.”
Gordon had said in November that crude could fall to $26 a barrel.
Oil Fundamentals Also Look Weak
Besides the technicals, crude oil fundamentals also look weak, with some analysts arguing that the continued high levels of supply could drive prices lower once the current positive sentiment surrounding the commodity fades.
“Supply and demand are way out of balance, and if you look at stock piling, we are floating in oil right now,” Gina Sanchez, CEO of Chantico Global, told CNBC.
The weakening dollar, and expectations of a demand surge during the coming summer months, have pushed crude prices higher. But Sanchez maintains that after a couple of months have passed, investors will realize that demand is nowhere as strong as is currently projected.
“You’re getting more enthusiasm in the markets…that’s been holding oil up,” she noted. “But when we get out of the driving season come August or September, you’re still going to see that we’re going to be floating in oil.”
Oil prices were down in early Monday Asian trade, with U.S. crude dipping 28 cents from their last settlement to $45.64 a barrel. Brent was also trading lower.