Oil Price Forecast – Oil Looks to be Getting Closer to Establishing a Bottom

Crude oil advanced by $1.41 or 2.82% today to $51.33, as it attempts to put in a bottom following a 24.7% decline off the January peak at $65.62. A low of $49.30 was reached last week, and this week a second possible low was seen at $49.40. Together, these two lows show that a potential double bottom bullish reversal pattern may be forming.

Oil – Fundamentals

The Organization of the Petroleum Exporting Countries (OPEC) cut its forecast for global oil demand growth as China fuel use takes a hit due to the coronavirus outbreak. This was on top of prior cuts in production by the world’s largest oil producers. China is the world’s largest importer of crude. So far, given today’s advance, the market doesn’t seem to be too concerned. Further, reported U.S. inventories were higher than prior estimates.

Meanwhile, uncertainty over the economic impact from the coronavirus diminishes to some degree as China’s Hubei province reports the lowest number of new virus cases so far this month. Also, the number of expected infections in mainland China fell.

Signs for a Bullish Reversal

A potential bullish double bottom reversal pattern has formed in oil. The pattern is not confirmed until there is a decisive breakout above the 8-day high of $52.16. At that point it is best to see momentum pick up in the direction of the breakout. There is a minimum possible target from the pattern of approximately $55.02.

That’s where the high to low price range, when added to the breakout level, is matched. In other words, take the distance from the $52.16 high of the pattern less the $49.30 low, and then add that to the high, in order to project a target. Keep in mind though that targets are not always reached, and it is best used as a guide.

Higher Price Targets

The target from the double bottom though is relatively lower than some other price targets, once momentum turns up with conviction. In addition, there is a bullish divergence showing in the Relative Strength Index (RSI) momentum oscillator.

Several other areas should be watched for either temporary or significant resistance. Areas to watch are marked on the enclosed chart and include $55.60, $57.40, and then the $59.40 to $59.60 price zone.

As with most retracements of trend, a minimum 50% retracement can be anticipated to eventually be reached. For oil, that would be around the $57.40 price zone.