Analyst who correctly predicted crude oil’s rally has a new forecast

Crude oil prices fell in the fourth quarter due to weakening global economies, declining gasoline demand after Labor Day, and the typical fall swap to winter-grade gas, causing many to become bearish.

However, oil prices found their footing in December, rallying from the high $60s per barrel to the mid-$70s, frustrating many who expected prices would continue heading lower.

Real Money pro commodity expert Carley Garner, who predicted prices would drop last fall, wasn’t surprised. She predicted in mid-December that oil prices would gain ground, writing “We expect prices to hold support near $68” and rally.

Recently, Garner updated her analysis, including her expectations for what could happen to crude oil prices next. Given her analysis in the past was prescient, paying attention to what she thinks now could be smart.

Crude oil prices have been volatile, leading many to question what may happen next.

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OPEC production falls, but U.S. production surges

OPEC+, which includes Russia, has been reducing its oil production in a bid to shore up prices.

In June, OPEC+ extended 3.66 million barrels per day of production cuts through 2024. Saudi Arabia also said it would cut an additional million barrels of production beginning in July, a decision that was extended in September. OPEC+ announced another 2.2 million barrels per day of voluntary cuts in November through March 2024.

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For this reason, the U.S. Energy Information Administration says OPEC production was only 27 million barrels per day in August, a two-year low. Saudi Arabia’s 8.7 million barrels of daily production was the least since May 2021.

OPEC’s cuts provide a tailwind to crude prices. However, those countries may have underestimated how much surging production elsewhere, including in the U.S. and offshore Guyana, would offset the impact. 

In October, U.S. crude oil production reached a daily record of 13.2 million barrels, up from 12.3 million one year ago. Growth in the highly profitable Permian Basin, the largest oil field in America, has swelled to approximately 6 million barrels per day from 1 million in 2013 because of advances in horizontal shale drilling.

Crude oil price charts suggest this happens next

The Wars in Ukraine and Israel continue to drag on, creating potential risks to global oil markets that may not fully be appreciated.

Increasingly, ships transporting crude oil in the Red Sea to the Suez Canal have come under fire from Houthi rebels in Yemen, forcing many vessels to divert and take the longer course around the Horn of Africa. Since this can add over 20 days to voyages, transporting oil is getting more expensive, and supply chains are getting stretched.

The uncertainty of potential supply disruptions provides a tailwind to crude oil prices.

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Garner says her technical analysis of crude oil’s price charts also suggests the path of least resistance is higher.

A commodity trader, Garner uses technical analysis to measure aggregate sentiment among all market participants, including big speculators with access to tools most investors can only imagine. 

“The weekly trendline comes in at about $68 to $66; seasonality is bullish for the next two to three months, and both the Williams Percent Range and Slow Stochastics are nicely oversold,” says Garner. “Barring any shock to the system, the odds favor higher oil prices.”

The Williams Percent Range and Slow Stochastics are momentum indicators technical analysts use to spot overbought or oversold markets using price charts.

Garner thinks crude oil could “test the $68 /$66 price point before a sustainable rally is possible.” West Texas Crude oil closed at about $72 on Jan. 16.

If Garner is correct, then a retreat in crude oil prices could provide commodity traders with an enticing entry point.

“As long as the bulls successfully defend the mid-to-high-$60s, the oil market should be viewed in a “buy the dip” light instead of a “sell rallies” market,” concludes Garner.

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