Crude oil prices may slide toward $70 a barrel in New York after breaching the bottom of a monthlong price channel, according to technical analysis by Societe Generale SA.

Oil for January delivery fell as low as $72.39 a barrel on the New York
Mercantile Exchange on Nov. 27, breaking through a “descending channel”
that formed after the commodity reached a year-to-date high on Oct. 21.
This may trigger a decline to the next supportive layer in a Fibonacci
sequence of price thresholds, Societe Generale said.

“We’ve exited below the descending channel, and this is not a very
positive element for prices,” Societe Generale analyst Stephanie Aymes
said in a telephone interview from London. “If this was a mild
correction, we would have remained trading sideways in that range.”

Oil’s low of $72.39 on Nov. 27 completed a 62 percent correction of the
commodity’s rally between September and October, Aymes said. The
significance of a 62 percent movement comes from ratios between numbers
in the Fibonacci series, used by traders to predict points of
resistance and support as a market repeats earlier moves.

The next important level in the Fibonacci sequence would be a 76
percent retracement of the September to October rally, taking oil down
to $70 a barrel, according to Aymes.

“The next retracement at 76 percent is at $70, which is the long-term
channel support,” Aymes said. “It is possible to drop down to the $70
mark, and we’d need to break through that for confirmation that this is
a really big correction.”

Oil for January delivery rose as much as 80 cents, or $1.05 a barrel,
to $76.85 a barrel in New York today. The contract traded at $76.72 at
7:55 a.m. London time.

Source: Bloomberg

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