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Oil Prices Face Critical Test

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barrons articleThe following is an excerpt from Chris Dieterich | April 4, 2016 | Barrons.com |

If you’re tracking short-term oil prices, then take a look at the charts.

West Texas Intermediate crude oil prices jumped from a low of about $26 a barrel on Feb. 11 to over $40 late last month. The low in oil prices, incidentally, also marked the low in the U.S. stock market. Recall that it was chatter about a production freeze or cut by the Organization of Petroleum Exporting Countries kick-started the rebound in crude prices.

Note that the rally in oil stalled last month just shy of its so-called 200-day moving average, a price threshold that is regarded to be long-term price pivot point. It was the third time that WTI rebounds failed to breach the 200-day average since the oil-price collapse began in summer 2014. Now, some chart watchers are warning that the recent backslide for oil prices risks falling below the 50-day moving average. U.S. crude prices slumped 3% on Monday to settle at $35.70.

Eric Bush at Gavekal Capital notes in a blog post that the 50-day moving average (currently around $34.30 a barrel) has been “an important signal during the free fall in oil prices since July 2014.” He goes on:

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