Oil Prices Are Poised To Move Higher Into April

Oil is poised to run higher to late April but is likely to first pull back later in this coming week.

Oil had been unusually weak in view of the rising cycles. Price came within 10 cents of breaking the former January 25th low on the 11th but then rallied more than 8% in a week.

Price reached $55.66 which is significant. This is the 38.2% retracement level of the October-December decline. The passing of this barrier will confirm that the situation has changed and that the prior decline is over. The $65 area appears to be a reasonable target by April.

Chart 1

The next projected turning point is on the 20th. And, the period from the 19th through the 21st has seasonally been the weakest part of this month as we can see in the daily histogram below. This 3-day period will likely lead to a short pullback in the oil price. No important support levels are expected to break; this will be an opportunity to add to long positions.

Chart 2- Daily Histogram for Oil for February

These bullish factors remain in force:

• Seasonally, oil is entering the most bullish part of any year
• The monthly cycle points up
• Oil was down from late September through late December. When this has occurred in the past, price has been higher three months later (March) in 17 of 21 cases and has been higher four months later in 18 of 22 cases (April). In other words, if oil sells off in the fourth quarter, the seasonal tendency to rally in March-April is enhanced.

Chart 3-Oil Price Annual Histogram

Chart 4- Monthly Cycle

The ratio of 2 ETFs graphed below is a measure of sentiment. The UCO rises by twice the price of oil and the USO rises by one time the price of oil. A high ratio is an indicator of bullish sentiment while a low ratio is an indication of caution. Note that the last high in this ratio was the high in the oil price. The ratio is at a low level, an indication of very reserved optimism toward oil and not representative of a top.

Chart 5-UCO/USO Ratio
Source: Forbes