Oil May `Break Out' Toward $94 If Support at $87 Holds: Technical Analysis

Crude oil, trading near the highest levels in two years, is likely to “break out” toward $94 a barrel if prices hold above $87 support, according to Chart Partners Group Ltd.

Commodities like oil, gold and copper are showing bullish short-term trends going into January, even as they “flirt” with an “opposing, corrective cycle” in the longer term, said Thomas Schroeder, managing director at Chart Partners, a Bangkok-based technical research company. The $87-a-barrel level is a pivot point and was the high for the year a few months ago, Schroeder said. Crude futures settled above $87 a barrel three times in November before rallying above $88 a barrel in December.

“It’s popped above $87, it came back down and had a hard fall, went back above $87. It’s having a hard time deciding whether it wants to hold that level,” said Schroeder. “As long as the $87 support holds, I think we’ll have some more significant highs in January to deal with.”

Crude for January delivery gained as much as 48 cents, or 0.6 percent to $88.50 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.36 a barrel at 8:46 a.m. Singapore time. Prior to November, futures last settled above $87 a barrel in October 2008.

A rally for oil next month will be its “last run of strength before a pending down-cycle unfolds,” according to Schroeder. Crude’s chart is also showing bear divergence, where peaks in the Relative Strength Index and Moving Average Convergence/Divergence indicators aren’t getting progressively higher, unlike oil’s upward price trend, he said.

“Indicators haven’t been confirming new highs, so that means crude’s on unsure footing, the rally is on limited time,” Schroeder said. “That usually means everybody’s sort of long, everybody’s waiting for somebody else to buy and nobody else does. That’s an underlying weak signal that I think will start to come through in January.”

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

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