The price of oil has somewhat stabilized this week after falling sharply the previous week. Brent oil looks like it has managed to form a base – at least for the time being. The reversal started on Tuesday, when oil prices fell for a time below Monday’s range, before closing the day above Monday’s high. Brent and WTI both managed to reclaim their technically-important 200-day moving averages. Brent also managed to hold its own above its long-term trend line (see the weekly chart for details). Thus, Tuesday represented a key reversal day as the previous selling pressure turned into apparent buying. However, there has been little further follow-through in the buying pressure thus far in the week, underscoring fundamental worries. Nevertheless, it looks like the slide is over and oil prices may be able to stage a more noticeable recovery in the coming days. At this stage though we will take it from one level to the next, as this could turn out to be just a pause. So, the next potential levels of resistance are at $53, followed by $54 and the $55. These levels were the previous support levels, which could very well turn into resistance upon re-test.
This potentially short-term bullish outlook on oil would become invalid however if Brent were to break to fresh yearly lows. In this scenario, Brent may drop to test the long-term 61.8% Fibonacci retracement level at $49.20/5 next. The 78.6% Fibonacci level is 25 cents below the $74 handle. Those are among our immediate bearish objectives IF Brent breaks this year’s low, hit on Tuesday at $50.30.