At first glance, this week's price action for West Texas Intermediate, Brent and RBOB look similar to the previous trading days of 2024. WTI briefly reached a new yearly high-water mark of $75.83/bbl but true to the form of the new year, a fade ensued and the Cushing contract settled at $75.09/bbl. RBOB got as high as $2.2457/gal but closed at a more modest level of $2.2095/gal.

But one favorite tool of technical analysts -- the often reliable head-and-shoulders pattern -- may be signaling that an upward trend is about to begin.

The pattern usually shows up in a chart with three peaks -- the outer two peaks are close in height but the middle peak is the highest.

Technical analyst Walter Zimmerman of ICAP believes that the markets for Brent and WTI may be forming a "textbook head-and-shoulders" bottom. Since mid-December, he has trumpeted the $72.29/bbl number as a prime candidate for the seasonal cycle low, with Elliott Wave analysis pointing toward a bottom for that contract as well. But now, the $72.29/bbl number is regarded as the head of what he terms a "massive potential head-and-shoulders bottom."

Similarly, the Dec. 13 low print of $67.71/bbl for WTI is the prime candidate for a seasonal cycle low for domestic crude. It also appears to be the head of the aforementioned "massive potential head and shoulders bottom."

The third candidate for a head-and-shoulders bottom occurred in RBOB on Dec. 13 when prices briefly slumped to a multi-year low of $1.9671/gal.

The ultimate confirmation of these patterns could arrive as soon as this week.

Zimmerman puts extra weight on weekly closes so Thursday's and Friday's action could provide confirmation. He notes that the formation of bottoms hasn't been "squirrely" with crude oil benchmarks essentially "basing" since the fourth quarter of 2023 commenced. Only an event such as peace in Ukraine might be capable of altering the symmetry.

If these futures contracts do break out, history is suggestive of some serious price escalation. If the $72.29/bbl Brent number indeed proves to be a seasonal bottom, 10 years of average December-to-May movement would target a rally all the way to $101.65/bbl.

For WTI, an average 10-year rally would push the spot month up to $96.40/bbl. And for RBOB, a 10-year December-to-May rally projects to a high print of $3.14/gal.

Not all the technical planets are aligned for a huge rally, however. Trader sentiment, as measured by the Bullish Consensus published by Market Vane is not at levels typically consistent with bottoming action. Somewhere over 60% of traders identify as bullish and more bearish sentiment is more typical for oil price valleys.


This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.


--Reporting by Tom Kloza, tkloza@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com

(END) Dow Jones Newswires

01-25-24 0933ET