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Oil Prices Head for New Highs or Spill Lower?

Oil prices have been on the mend over the past few days, but aren't out of the woods quite yet. Here's what the charts say could be next.

Oil prices have been at the center of attention, both for investors and consumers.

As inflation continues to roar higher, seemingly everyone has an opinion and a story.

That goes all the way up to the Oval Office and the Fed, the to our friends and family who can’t believe what it costs to fill up at the gas station and get a steak from the grocery store.

Fed Inflation Gauge Speeds To 30-Year High, October Consumer Spending Leaps

As supply chain bottlenecks slow logistics, oil prices have been on the rise. Increased energy demand only adds to the price pressure. It’s classic economics. That's why the Biden Administration tapped into the strategic petroleum reserve

Oil prices endured a very orderly “ABC” correction from the July high to the lows in August.

Not long after that though and oil prices took off again. After bottoming on Aug. 23, crude oil ripped off nine straight weekly gains.

It gave a huge boost to stocks like Exxon Mobil  (XOM) - Get Exxon Mobil Corporation Report, Pioneer Natural Resources  (PXD) - Get Pioneer Natural Resources Company Report and Chevron  (CVX) - Get Chevron Corporation Report

Then the gains slowed. Oil prices are up for the week, but before that it had endured four straight weekly declines.

However, one could argue that this string of losses is another orderly “ABC” correction.

Are new highs going to be on the table again — just like the last correction — or is there more downside ahead?

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Daily chart of oil prices.

Daily chart of oil prices.

The most recent dip sent oil back down toward its summer highs near $77, while the VWAP measure from that high acted as support near $74.50. The 21-week moving average also helped.

Over a three-day span, oil prices hammered out a nice bottom near $75 before pushing higher.

The problem now?

Crude is running into the underside of its 50-day moving average and its declining 10-day moving average.

Bulls will need to see oil push through these marks if they want a chance at the highs. Obviously a weekly-up rotation would be incredibly helpful, but that’s all the way at $81.81.

If we get a quiet finish to the week — or rather, if we don’t make new weekly highs this afternoon or on Friday — then a weekly-up rotation over $79.23 is possible next week.

That would launch crude over the 50-day moving average and give bulls a chance to press oil up to the 21-day moving average. Above that and the $85 area could be back in play.

On the downside, watch the prior high near $77. A move below that likely puts this week’s low on the table near $75.

Below that could eventually push oil prices down toward the $70 area and the 200-day moving average.

That’s a pretty direct way of looking at this. Either we push through this week’s highs and the key moving averages or oil risks rolling back over. 

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