New 52-Week Highs for Crude Oil Could Suggest Better Times Ahead

It has been a wild ride for crude oil this year so far. After falling more than 80% from its all-time high and being caught in a historic bear market, it finally bottomed near $26/barrel in mid-February and has since been one of the strongest performing assets. Helped by the surge in crude, equity markets and credit markets have been on much firmer ground as well.

Crude recently closed at a new 52-week high for the first time in more than three years! In fact, according to Bloomberg data dating back to 1983, this was the second-longest streak ever for crude oil without a new 52-week high. Looking at the 10 longest streaks for crude oil without a new 52-week high, the returns after achieving the new high are rather strong. Up 6% on average three months later, 15% six months later, and 22% higher a year later—the future could potentially be bright for crude oil.

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Last, crude oil is potentially forming a very bullish “inverse head and shoulders” pattern, which could suggest much higher prices as well. (As the names suggests, a head and shoulders pattern looks like a head with two shoulders. There is one major peak, surrounded by two smaller peaks, and these patterns are used by technicians to find major changes in trend.) Crude oil is near the neckline and should it be able to separate from this area, this could lead to continued strength.102416-blog2

Summing it up, Ryan Detrick, Senior Market Strategist, observed, “The stabilization in crude oil is a big reason for the turnaround in equity markets this year. When crude was crashing it caused instability and massive volatility in many global markets; now with crude improving, it has brought with it a good level of calm. The improved technical and fundamental backdrop in crude oil continues to suggest potentially higher prices as we head into next year and further out.”

For more of our thoughts on energy policy, but sure to read our Weekly Economic Commentary due out later today, as we examine the reality of U.S. energy consumption and the changing economics of energy production.

Background on Technical Analysis

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