Brent Crude Set Drop to $116 on Fibonacci: Technical Analysis

Brent is set to decline toward a Fibonacci level close to $116 a barrel in London after prices encountered a key resistance level, according to Barclays Plc.

Brent traded at about $119 a barrel on the ICE Futures Europe exchange in London today, having lost about 5 percent this month. Prices have remained below $121.50, a threshold in line with the commodity’s lowest points over the past three months, since April 13, according to a report dated yesterday. Brent’s failure to break through this level signals it’s more likely to drop than rise, according to the bank.

“Former range lows near $121.50 act as resistance and keep our focus lower for Brent,” analysts including Philip Roberts in London and Jordan Kotick in New York wrote. “Our initial targets are in the $116.30 to $116.60 area.”

Those levels represent a 62 percent retracement of Brent’s rally to $128.40 a barrel last month. The significance of a 62 percent movement comes from the Fibonacci sequence of ratios used by traders to predict points of resistance and support.

A drop below $116.30 “signals downside extension,” Barclays said, without specifying a further price target.

In New York, crude futures are “locked” in a range from $101.80 and $105.07 a barrel, according to Barclays. A drop below $101.80 would indicate that prices will decline further toward $100.65, the bank said.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net