Oil price’s move in the upcoming weeks will be decisive for its overall performance in 2018. After our initial oil price target in 2018 was met recently, we published an Oil price update where we mentioned that oil is not bearish, at least not from the long term perspective. Our outlook was based on the analysis of the price chart from 1982 till 2018.
This article provides our readers with another update but, this time, we will look at the price chart and its configuration for 2018. So if our recent oil price update provided oil price’s long term trend and the price levels crucial to maintain oil in the bullish zone, our chart today will zoom in to identify the price levels that could impact the performance of oil in 2018.
Before looking in the oil chart we want to remind readers of our conclusion from Crude Oil’s long term price chart:
In fact, as long as Crude oil trades above 52USD, it is still Bullish and will likely head upwards. If it breaks below 50 USD, it would be bearish and we could see the price drop towards the bottom of the channel where there is a mega support area at 40 USD.
Crude Oil’s Price Chart in 2018
In 2018, Crude oil has been slowly making lower highs and is moving in a slightly descending channel as shown below. From the chart below, we have noted the following observations:
- There is a major head and shoulders pattern that can be easily identified on the chart.
- Oil price is at a crucial support level in the mid-channel area. If the price drops below the dotted red line (Below 60 USD and does not recover quickly), we expect it to revisit the bottom of the channel at 56 USD. This is why we are watching the price action so closely.
- The 55 USD area represents a a mega support for Oil prices.
What does all this imply specifically to forecasting the oil price?
- Should the price drop as low as 56 USd, we expect a bounce back towards 63 USD.
- If the price remains or regains the 61 USD level, there will be a lot of overhead resistance. In that case, expect a sideways movement for Oil price.
Why are smart investors closely watching the oil market? Not only to forecast the price of oil but, more importantly, because oil is known to correlate to the stock market once it becomes very bearish. Remember the strong correlation between stocks and crude oil in 2015 / 2016? We wrote about it in How Panic In Crude Oil Is Driving The Sell Off In Stocks.
In other words, if support in the crude oil market gives away, and crude would start falling hard, it would be very bearish for global stock markets. We are not saying it will happen, we are saying that smart investors are watching how the oil market develops because of the intermarket dynamics and trends.