Oil prices fell to seven-month lows on Tuesday, as traders continued to grapple with a market that is oversupplied.
According to Paul Ciana, a technical strategist at Bank of America Merrill Lynch, oil is headed even lower and could revisit levels it hasn’t hit in over a year.
“Oil is in a downtrend and risks trending into the $US30’s,” Ciana said in a note on Tuesday. West Texas Intermediate crude oil, the US benchmark, fell to a 12-year low of $US26.21 per barrel last February.
Using technical analysis, traders examine chart patterns to forecast changes in a security. Some traders do this alongside fundamental analysis, which, in oil’s case, would point to rising output from Libya and other key producers when making a bearish case.
Ciana noted a year-to-date downtrend in the price action of oil. It peaked this year near $US54 per barrel in February and has lost nearly 20% this year.
“The decline in oil prices has paused at the bottom of the downward sloping channel with support at $US44.09 and resistance at $US46.75 and $US48.70,” Ciana said. However, he said, a close below the support of $US44.09, the level below which traders had not allowed oil to fall, is bearish.
The front-month contract for West Texas Intermediate crude-oil futures on Tuesday fell to as low as $US43.16 per barrel, down nearly 3%.
The Organisation of Petroleum Exporting Countries, a cartel of key producers, has had a tough time rebalancing the oversupplied market. After agreeing to curb production for six months starting in January, OPEC decided in May to extend cuts for nine more months.