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Oil May Rise to $90, Escaping ‘Bear Trap’: Technical Analysis

Jan. 28 (Bloomberg) -- Oil is likely to rise to between $88 and $90 a barrel in the coming weeks and yesterday’s decline below a Bollinger Band support level may mislead investors into seeking an extended price drop, Cameron Hanover Inc. said.

Crude, set for the biggest weekly decline in New York since November, will rebound if futures settle above $86 a barrel, said Peter Beutel, president of the energy adviser in New Canaan, Connecticut. The market yesterday closed below that level for the first time since Nov. 30, breaching technical support on the daily chart indicated by the Bollinger Band.

“The question now is whether prices will eventually break down,” Beutel said in an e-mailed note. “At this stage, we could have a bear trap that will preface a renewed attempt to move higher.”

Oil has fallen 3.9 percent this week on speculation high prices may derail the economic recovery in the U.S., the world’s largest crude user. Futures for March delivery on the New York Mercantile Exchange were at $85.62 a barrel in electronic trading, down 2 cents, at 5:31 p.m. Singapore time.

Bollinger Bands, which plot support and resistance levels based on volatility, are used by investors to determine entry points for buying or selling contracts. Crude rebounded in late August after slipping below the lower band, which is at $85.87 a barrel today.

Investors may start selling when oil reaches $87.85 a barrel, with further resistance levels at $89.65 and $90.25, according to Beutel. If prices fail to settle above $86, the market may drop to as low as $83.55, a level last traded Nov. 30.

“The longer prices stay above $86, the more likely it is for prices to stabilize and try to advance,” he said.

To contact the reporter on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net

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

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