The rapid collapse in Nymex oil prices caught many investors offguard, and the worst may not be over, with charts suggesting further declines ahead.
Crude oil prices have tumbled over the past six months amid a supply glut and waning demand, sending prices to their lowest levels in six years. The relentless decline led many banks to reduce their price forecasts including Goldman Sachs, which last week cut its three-month price outlook for WTI crude to $41 per barrel from $70. If charts are anything to go by, the reduced price forecasts are warranted.
Best seen on a monthly chart, let's examine the price behavior from a technical perspective. Nymex oil trades in broad trading bands that define its trending behavior. The trend in the oil price decline from near $100 to below $48 per barrel in January has been interrupted by consolidation pauses near each of these trading band levels. This is a strong downtrend, so the consolidation pauses have been brief.