PoundSterlingLIVE - Crude oil's u-turn could put it on track for a downside test of $75 a barrel according to a new analysis made in the wake of recent price action.
"Concerns over a slowing global economy triggered heavy sell orders that overwhelmed intraday rallies," says Alex Kuptsikevich, senior market analyst at FxPro.
The call comes as a fall in oil prices from recent one-year peaks enters a fourth session, taking WTI crude prices from $94 back to $88 at the time of writing.
The price action near those one-year highs looked to Kuptsikevich as "a desperate last-ditch attempt by the bulls to assert their superiority."
He notes three distinct waves in oil's post-June rally and since last Thursday, intraday rallies have been suppressed by heavy sell orders.
"This sustained pressure appears to be more than just a moment of market cooling and is in line with the typical wave pattern, which now suggests three downward impulses," says Kuptsikevich.
Further technical analysis reveals last month saw a divergence in the daily RSI timeframe when a higher price peak coincided with a lower oscillator peak. "This is often a sign of exhaustion of bullish momentum. It is also important to note that the index has already retreated from the overbought zone, indicating the start of the decline," explains the analyst.
"Potentially, the next downside target is the $84.4 per barrel area. The 50-day moving average is concentrated here, as are the early August and mid-April price peaks," adds Kuptsikevich.
However, oil prices could go even lower.
"The global economic slowdown and falling final demand are now working against it. Moreover, black gold has long been rising against a rising dollar and falling markets. And now it may well catch up with the markets, which are falling, with redoubled strength," says Kuptsikevich.
The analyst cites reports of rising oil exports from Russia and Saudi Arabia last month, reducing the market deficit and raising questions about whether the cartel's production ceiling is as firm as it seems.
"More solid support for oil may only come with a drop to $78. That's the 50-week moving average, but we wouldn't be surprised to see a drop to $75 by the end of the year. These are high levels by historical standards, but they no longer look like a drag on the economy and a good reason for further policy tightening," says Kuptsikevich.
An original version of this article can be viewed at Pound Sterling Live
