The Future Outlook for Oil

In early July, I predicted that spot Brent crude oil had hit its lowest point at $78 a barrel. This was supported by my analysis, as mentioned in the July 8 Institutional View report. As Brent crude rose above $81 on a weekly basis, its momentum started to accelerate. However, as it approached my target of $100, the progress of oil and energy stocks began to slow down.

Reaching a peak momentum level of $97.50, oil encountered a strong resistance area. Upon further examination, it became evident that energy stock indexes were displaying signs of weakness. They were unable to overcome resistance, and their volume flows deviated from their previous uptrends. Due to these observations, I downgraded oil to a Neutral rating in my Sept. 19 report when it reached $94.

What does the future hold for this commodity? Based on my research, oil appears to have limited downside risk in terms of price. There is substantial support from both the price and the 200-day moving average in the range of $80-$82. At the same time, as oil approaches this price support, momentum indicators have reached their most oversold level since May, when oil was priced at $72. However, given that weekly momentum is currently neutral as oil nears its support level, the main concern is that oil might trade within a narrow range for an extended period rather than experiencing a significant decline in price from this point onward.

While my work indicates that a low could potentially form between $80-$82, I recommend waiting until another bottom is confirmed before making any decisions about adding or initiating new positions.

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