Oil could ‘easily’ recover to near $80: Firm

Published Fri, May 8 20157:16 AM EDTUpdated Fri, May 8 201510:31 AM EDT

A research firm believes crude oil prices could erase half of their losses from their peak last year, as the commodity continues a strong comeback. "We think a 50 percent retracement [to $76.6] during the current bull could be achieved pretty easily," wrote Bespoke Investment Group in a recent note to clients. That moves implies a 30 percent gain from here. Technical analysts often draw 'Fibonacci retracement' levels to create a road-map for trading using past price levels for a security. The Fibonacci numerical sequence is named for a mathematician from Italy who found these values in the 13th century as naturally recurring in nature. Since the price of oil fell to a six-year low in March, the commodity has already tested its first retracement level of $60.10, and it's up about 40 percent. The next stop, according to Bespoke, would take oil to $69.23, and once that's breached, traders would then focus on the $77-level, as shown on the chart below. Source: Bespoke Investment Group "I have maintained that oil has been grossly oversold and we'll have an adjustment," said Carl Larry, director of business development for oil and gas at Frost & Sullivan, pointing to the 60 percent plunge in crude prices (from peak to trough). "The correction has started this month to get us over $60 and we'll pick that back up soon enough and make a run to $70 in the coming weeks," he added. Read More Can't get worse. Bond traders see relief rally Moving forward, Larry believes there's going to be more demand for crude on the back of lower U.S. production, as energy companies are more cautious with their cash and banks keep a short-leash on lending. Even geopolitical tensions could have just "a limited move lower," he said, while the lack of a deal with Iran will send the "market bullying higher." The Money Play: Within the energy sector in the past month, oil drilling, gas production and equipment companies are up the most. Some of those names include Cameron International , Transocean and Cabot Oil & Gas . Another way to bet on oil is through ETFs such as the United States Oil Fund (USO) or the United States 12 Month Oil Fund (USL)—both up about 10 percent in the last month.

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A research firm believes crude oil prices could erase half of their losses from their peak last year, as the commodity continues a strong comeback.

"We think a 50 percent retracement [to $76.6] during the current bull could be achieved pretty easily," wrote Bespoke Investment Group in a recent note to clients. That moves implies a 30 percent gain from here.

Technical analysts often draw 'Fibonacci retracement' levels to create a road-map for trading using past price levels for a security. The Fibonacci numerical sequence is named for a mathematician from Italy who found these values in the 13th century as naturally recurring in nature.