Brent set to trickle down

Crude oil’s switch from mighty spurt to tiny drip has been nothing less than spectacular. Four years of dramatic gains were wiped out in five months, as the price of Brent Crude fell from $148 to just $36 in December.

And in spite of a recent rebound, the black stuff remains more than two-thirds below last year’s all-time peak.

It is possible that the short-selling frenzy has gone too far. According to research from Barclays Capital this week, the number of traders speculating against crude oil in the US is near record extreme highs. Such negativity often results in price gains, as there are few bears waiting on the sidelines to come in and push the market down further. However, any sustained recovery in crude oil faces an enormous obstacle from its monthly Ichimoku cloud indicator between $50 and $62.

I wrote on October 31 – when Brent Crude was at $64.70 – that the price could drop to as low as $31.54 and that “the most surprising thing could easily be the speed with which my target is achieved”. Less than two months later, Brent Crude came within a few dollars of my pessimistic objective.

My analysis now suggests that the most likely direction for crude is still down to $31.54 and perhaps even to $24.25 further out. A surge through the 21-week exponential moving average ($54.35) would force me to rethink.