Crude oil could rally 16 percent by year end if this analyst is right

After reversing a multiyear downtrend and breaking higher, crude oil could return to $62 a barrel by the end of the year, according to one technical analyst.

West Texas Intermediate oil, which fell Thursday after an unexpected increase in inventory, has rallied nearly 21 percent over the last two months, surging from $45 a barrel to $54 in the last few trading days of 2016. Ari Wald, head of technical analysis at Oppenheimer, has noted a multiyear bullish reversal in the charts that to Wald indicates moves closer to crude's highs in June of 2015.

"It's more recently completed a yearlong bottoming formation and, in the charts, we can see it's got a rising 200-day moving average as well," Wald said Wednesday on CNBC's "Trading Nation."


Technically speaking, a bottoming formation means the asset has reached a low and could be in the beginning phases of heading higher. The bottom formation to which Wald refers formed around the $50 mark, which crude broke in early December — thus the formation's completion.

"So the trend is a tailwind here. I think it's most likely to be a sluggish grind higher," Wald said, citing a stronger U.S. dollar in recent months, which generally moves inversely from the price of dollar-denominated crude oil.

Crude oil in Tuesday trading plummeted over $2 a barrel on the back of a surging dollar after having risen to 18-month highs as investors hoped a recently announced production cut would alleviate global oversupply in crude.

While oil is heading higher, agreed Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, he doesn't see as big a bull case as Wald.

"I would be much more likely to want to buy the pullback than try to chase this rally. I think there's very, very limited upside here in this rally," Schlossberg said Friday on "Trading Nation."

Three main issues give him pause: OPEC "cheating" and not sticking with its agreement among member countries, frackers entering the market — and boosting production — when oil hits the $55 to $60 range, and demand he sees falling globally.

"I would definitely be buying the pullbacks, because I think it's certainly, definitely bottomed out, but I don't see too much potential to the upside," Schlossberg said.


Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect