Oil May Fall as Technical Tools Signal PullbackMark Shenk
Oil may fall next week as technical indicators signal that prices may have risen too quickly to be sustainable and as equities come under downward pressure, a Bloomberg survey showed.
Eighteen of 37 analysts, or 49 percent, forecast crude will decline through Feb. 15. Twelve respondents, or 32 percent, predicted an increase and seven forecast little change. Last week, 42 percent of analysts projected a gain.
The relative-strength index of front-month oil futures rose above 74 at settlement on Jan. 30, the highest level since Feb. 24, 2012. The RSI slipped to 55 today, the least since Dec. 24. The Dow Jones Industrial Average of U.S. shares on Feb. 1 exceeded 14,000 for the first time since October 2007. The Dow has been unable to breach last week’s high.
“The RSI momentum indicator was very overbought and generally slides to at least 50 once it starts to pull back,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “The oil-to-equity correlation tends to be rather reliable, and equity markets have a history of pulling back after initial move through big whole numbers.”
RSI readings above 70 suggest prices will decrease, while figures below 30 can be buy signals. Technical analysts use historical patterns and tools such as the relative-strength index to predict price movements.
Equities in the U.S. dropped yesterday after disappointing economic data. Worker productivity fell more than projected in the fourth quarter as the economy shrank, pushing labor expenses up and showing companies are approaching the limit of how much efficiency they can wring from employees. Jobless claims decreased less than economists estimated last week.
Oil declined $2.05, or 2.1 percent, to $95.72 a barrel this week on the New York Mercantile Exchange. Prices have climbed 4.2 percent this year.
The oil survey has correctly predicted the direction of futures 50 percent of the time since its start in April 2004.
Bloomberg’s survey of oil analysts and traders, conducted each Thursday, asks for an assessment of whether crude oil futures are likely to rise, fall or remain neutral in the coming week. The results were: RISE NEUTRAL FALL 12 7 18