Mapping the Market: Global oil prices could extend slide

Global oil prices have tumbled about 20% since their peak at the end of last month ​as resurgent hopes for a cessation of hostilities between the US and Iran ​has taken over market sentiment.

Though the history of the conflict ‌suggests ​that could easily change, the recent drop has opened the possibility of further oil-price relief, technical analysis indicates. Click here for a detailed technical analysis chart.

Technical analysts use charts of price history to map out where markets can go in the future. One thing ‌they look for in a falling market is support, which is a level that can act as a floor for the price. Previous highs and lows often become support, as do moving averages, which strip out price extremes to reveal an underlying market trend. Something called Fibonacci retracements are also a good source of support. Fibonacci retracements are percent-based calculations of levels that markets often ‌revisit after a move.

An important Fibonacci retracement has come into play for global oil prices, which are tracked by the benchmark known as Brent crude futures. The recent oil price ‌slide paused near the 50% retracement of its rally from July through October. That level is $94.07, according to LSEG data, and has become an important area of support. It is reinforced by the 200-day moving average near $93.84 and the 40-week moving average at $95.27.

After such a big fall, markets often stop to digest the move. This is known as consolidation and is often seen as a healthy development in a trend. To gauge the possibility ⁠that a ​market will keep falling, technical analysts use tools measuring ⁠momentum and volatility. The Relative Strength Index is one. It uses the time and scale of a move to measure momentum.

Another device is Moving Average Convergence Divergence, or MACD, which compares two moving averages to gauge ⁠momentum. Analysts also rely on something called Bollinger Bands, which measure the variance of a price from a central moving average to gauge volatility.

All three of these tools indicate that Brent’s climb since July is over ​for now and that the oil price can continue falling. In rapidly changing markets, weekly charts sometimes offer a clearer picture of a trend. If Brent sustains a ⁠fall on a weekly basis below its current support in the $93.25 to $95.25 area, it could head toward the $89 to $90 zone followed by $85 to $86, where previous lows and highs are located.

A further slide would target the $78 to $80 area, at ⁠which point ​traders would begin to assess whether Brent is carving out a $78-to-$118 trading range or setting up another phase of losses that would target the July low near $70. The risk of moves up or down is inherent to any market, especially one as volatile as oil has been this year due to the flow of news headlines from the Iran ⁠war and related diplomacy.

A rise in Brent back above $100 to $101 would raise questions about further falls. What the chart shows:

(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. ‌The column does not constitute investment ‌advice or trading recommendations. ) (Christopher Romano is a Reuters market analyst. The views expressed are his ​own. Editing by Burton Frierson and David Gaffen)