There is room for the price of Oil to fall

Oil price continued to fall and is now at its 12 week low. Price of brent crude is currently at US$122.70 per barrel, falling $24 (16.5%) from the high of $147 just 3 weeks ago. The steep decline in the price of oil has boost equity markets around the world. How far can the price of oil fall... or has it already hit the bottom of the correction?

I have mentioned in my previous analysis that "If price breaks below $130 we may anticipate a bigger correction". Price did go below this level and we are expecting a bigger downward correction.

Chartwise, there is still room for price to decline further because the average price in the up trend is at about $103.00. The $103 is defined by the linear trend line (represented by TL on chart below) and the 52-week (yearly) average. These two lines are exactly at the same level.

Based on Fibonacci studies, the conservative retracement level for a correction which is 38.2% is currently at $110.00 while the 50% retracement is at $99.00. (See chart below). The Fibonacci retracement is derived from the up trend rally that starts in early January 2007 to the peak on July 2008.


Weekly Light Brent Crude Oil Sept08 futures contract as at 30 July 2008, using NextVIEW Advisor

Therefore, there is room for the price of oil to fall, and in this case about $20 to $30 (16% to 24%) from the current price. A more aggressive forecast was made by OPEC President Chakib Khelil on Tuesday that oil could fall further to US$70 to US$80 in the long term.

Definitely good news for the equity markets.

Commentary and analysis by Benny Lee