Technical Update: Brent Oil

Brent crude oil has been falling since April. It declined into a low in the second half of last month and has since risen to test the 50-day moving average as shown in figure 1.

Figure 1

One of the key underlying features of this chart comes from a speed fan shown in figure 2. The market has been respecting one fan line in particular all the way down since April. The 0.25 line is highlighted in red in figure 2.

Figure 2

Price has come to test this falling resistance again. This time it coincides roughly with the 50-day moving average, giving the level more significance. In figure 3, all fan lines are removed apart from the 0.25 to reduce congestion.

Figure 3

If price respects this level again and turns down, then the downtrend continues and lower lows can be expected to form below previous support around $55.90. If it breaks above, we can use the largest distance from the trendline as a minimum projection target, shown in figure 4.

Figure 4

The first vertical purple line is used to measure the farthest distance between price and the trendline. That distance is copied in the second vertical purple line which is projected from the potential breakout point. This technique lands on a target around $74, very close to the resistance at the beginning of the downtrend.

Note that WTI crude was also forming a downtrend based on the 0.25 speed fan line over the same period. It broke above on Thursday last week and has held above since, shown in figure 5. There’s a very good chance Brent oil will follow suit with a breakout on this retest.

Figure 5

Price has held below this trendline for almost 140 days and multiple tests. The fan line offers a strong point of resistance. However, recent price action on the closely aligned chart of WTI crude suggests that a breakout is more likely. Beware of false breakouts, and apply appropriate filters before entering positions.