Technical Analysts Say Oil Heading to $62, Others Insist Fundamentals Mean a Plummet to $30s

by Ship & Bunker News Team
Monday August 22, 2016

Amidst the excitement of oil's current rally comes further speculation about where the market is headed, with respected analysts arguing that prices will either soon drop back down below the $40s or climb above $60 per barrel.

For bunkers, in the high case this would mean IFO380 hitting $350 per metric tonne (pmt) in the primary ports, while on the low side, they could again slip under 200 pmt, according to Ship & bunker data.

Ari Wald, head of technical analysis for Oppenheimer, told CNBC's Future's Now that with oil in the near term heading back "to that important $50 level," he believes it will continue to advance, "and looking out into 2017 we're talking about West Texas crude oil at $62."

Walk justified his remarks by pointing out that market dynamics changed in April: "that's when West Texas moved above its 200 day moving average; it broke the two year decline, and that was the point we were making the case that oil was in the process of basing.

"Then, since the peak in June, we're encouraged by the inflection we've had from the 200 day moving average a few weeks ago ... the bears had all the reasons to push the sell button, that didn't happen, you saw a very strong reversal there, and now we're seeing a continuation of that."

Wald added that the weak U.S. dollar contributes significantly to his outlook: "Looking at the Dixie, it looks like it's heading back to that important 92 level, and due to that inverse correlation we think that provides that tail wind for oil as well."

When asked if he wasn't being overly technical at the expense of ignoring fundamentals such as the continued global oversupply, near-record production, and weakening demand, Wald countered that the fundamentals have already caused prices to drop from the $100s to current levels; he insisted that the dollar is the true driver of current oil prices, and that the situation as stands is "a nice little near term trading set-up."

Ironically, the most outspoken analyst in the bear camp – John Kilduff, founding partner of Again Capital, who has persistently predicted $30 oil due to fundamentals – agrees with Wald in so far as to foresee impending market improvement.

But not before prices take a hit, he told CNBC's Squawk Box: "We're probably going to touch $50. I think we're going to ring the bell before we can head back down.

"I think we're going to go back down to at least $40 and possibly the mid $30s."

However, he added, "I do think this will be the washout that will set up a broader run higher, more stable prices for next year."

At the end of the day, maybe the most accurate prediction is the safest one that accommodates the widest possible outcomes, and this was recently provided by Francisco Blanch, the head of global commodities and derivatives research at Bank of America Merrill Lynch, who said trading in the extremely wide ranges of $25 to $90 per barrel is a distinct possibility over the next three or four years.