Well, Crude price has been all over the place in the last couple of years. In the year 2020 we saw a major crash with negative rates on WTI Crude. Fast forward now to current Russia-Ukraine War where we saw WTI Crude test the highs near $129 which is about $20 away from the highs made in 2008. In the meantime, Brent Crude touched $138 which is nearly $10 away from the previous life time highs.
Current Market scenario is quite dynamic where every day we see new updates on the China Lockdown, OPEC+ supply outlook or any development on the War. This has actually opened up a range of scenarios and it is crucial to remain objective rather than follow the crowd.
To understand the broader picture, we are looking at a Log Scale monthly chart of Brent Crude Oil. At times just by switching from arithmetic scale to a Log scale, many things clear out. Below we have shown the Elliott wave theory application with Channeling technique which indicates that the breakout has just come through.
Brent Crude Oil (Log Scale) Monthly chart:
As we know, technical analysis is all about probabilities and based on the use of various technical tools we try to arrive at the higher probable scenario. Thus, we are showing 2 high likelihood paths and key levels which will give vital clues to gauge the major trend and objective outlook.
Scenario 1 – Bullish – High Probability:
Channels and Fibonacci: It is imperative to look at the channeling technique which is an integral part of Elliott wave analysis. Here prices are intact in an upward rising channel since the year of 1960. The low made in the beginning of 2020 tested the channel support and resumed the major uptrend. The entire corrective move started in 2008, tested the 61.8% Golden ratio of the prior rise from $10.50 to $147.50 levels. Moreover, post that, prices broke out from the downward sloping red channel which suggests the next bull run is underway.
Elliott wave pattern: The channelized nature of up move since the year of 1960 suggest that Complex correction pattern is under formation (W)-(X)-(Y)-(X)-(Z). From the lows made in 2020, prices are in intermediate wave (Z). This wave (Z) is likely to move higher towards the channel resistance level, if the prices manage to surpass the key resistance zone of $145-150 with strong momentum, then next key level can be expected near $210 level where 78.6% of the prior rise is placed. This possibility will remain alive as long as $90-85 zone is protected on the downside.
Scenario 2 – Bearish – Low probability:
As discussed, it is important to keep the other possibility in the loop to avoid any kind of surprises. From here on, if prices struggle to take out the zone of $145-150 levels, then it will increase the probability of a Double Top formation where we might see the ongoing rally fizzle out near all-time highs. Keep in mind there is no indication of a Double Top pattern yet, but just a probability which we are not ruling out.
In this case, we will expect prices to retrace around 61.8% of the entire rise seen from the lows made in the year of 2020 which comes close to $67-62 levels.
In a nutshell, the price structure on the Log scale monthly chart indicates that a bullish breakout is being witnessed from the downward sloping red channel. In case of a bullish scenario prices are likely to test $145 followed by $210 levels whereas an alternate scenario will lead price towards the support of $67-62. Surprising times are ahead definitely!
