Light crude oil fell 1.4 per cent in the midst of volatility last week and settled at $90.13 a barrel on the New York Mercantile Exchange. Its key long-term support band between $75 and $77 arrested the commodity’s decline in late June 2012. As long as oil trades above this support band, its long-term trend remains up.

This level also coincides with 50 per cent Fibonacci retracement level of its up move between early 2009 and May 2011. An emphatic weekly close below $75 will mitigate the commodity’s long-term uptrend and drag it down to $65 and then to $55 in the long-term.

Oil has significant long-term resistance in the zone between $97 and $100. Strong breakthrough of this zone will accelerate oil northwards to $115 and then to $125 in the long-term.

Medium-term View

After encountering key resistance at $110 in late February this year, light crude oil changed direction and started to decline. Since then, it has been on a medium-tem downtrend. Only a strong move above the resistance zone between $97 and $100 will alter this downtrend and take the commodity higher to $110 and then to $115 in the medium-term.

The commodity’s 200-day moving average is hovering in this zone. But inability to rally above $97 to $100 zone will pull it down to $85 and then to $75.

Short-term trend has been up for oil since its June 28 low at $77.2. It is presently hovering above its 21- and 50-day moving averages. Decisive jump above its immediate resistance at $93 will take the oil higher to $97 and to $100 in the upcoming weeks. Nevertheless, failure to rally above $93 and a subsequent fall below $85 can pull the commodity down to next support at $80 or even to $77 in the same time frame.

yoganand@thehindu.co.in

(This article was published on July 28, 2012)
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