With so many traders keen to forecast the longer term prospects for crude oil, I thought it was time to add my own thoughts, and as always at times like this, I find starting with the slower timeframes provides a more balanced and rounded view of the way ahead. And if we start with the monthly chart, the last four months of price action are perhaps the most revealing as oil prices moved from the $53 per barrel region to finally test the low last month of $28.37 before regaining some ground this month. The feature of this price action is simple, and is a classical example of volume price analysis in action as we begin to reach the bottom of an extended price waterfall. Here we have high and ultra high volumes rising as the price action falls, but with no dramatic increase in price spreads on the monthly candles, and indeed in both January and February, both candles closed with lower wicks, signalling strong buying at this price level, along with the first signs of stopping volume. This is likely to be the precursor to an extended phase of consolidation in this region as further selling pressure is absorbed over the next few months, but nevertheless a clear signal that we are seeing the first sign that crude oil prices are likely to form a bottom in this region before building into a congestion phase at this level.
Moving to the weekly chart, this also confirms this view, with sustained buying appearing four weeks ago with the narrow spread candle and high volume with oil prices finding some bullish momentum as a result. This is just the start of the accumulation phase, and we are likely to see further moves to the downside as the high volume node continues to build in the $32 per barrel region which may continue for several weeks or months before any longer term bullish trend begins.
Finally to the daily oil chart where oil prices are now consolidating around the volume point of control in the $33 per barrel region. Whilst last week was a mildly bullish one in this timeframe, resistance now awaits in the $36 per barrel region, and likely to cap any further advance in the short term as the longer term timeframes continue to mark time and build the accumulation phase now required for any sustained recovery.
Meantime, just as the technical picture is now just starting to shift its bias, the fundamental issues still remain firmly in place, with OPEC continuing its policy, oil supplies remaining plentiful, and Iranian embargos being lifted. The only contradictory element is the US dollar with some short term weakness helping to give other commodities a well deserved lift.
By Anna Coulling
Charts by NinjaTrader and indicators from Quantum Trading