- "The charts, as interpreted by Carley Garner, suggest that this oil rally's living on borrowed time," CNBC's Jim Cramer said Tuesday.
- "Sooner or later, she thinks crude will roll over as privately held producers flood the market with supply," the "Mad Money" host said.
The jump in oil prices may run out of steam, CNBC's Jim Cramer said Tuesday, based on technical analysis from commodities strategist Carley Garner.
"The charts, as interpreted by Carley Garner, suggest that this oil rally's living on borrowed time. Sooner or later, she thinks crude will roll over as privately held producers flood the market with supply," the "Mad Money" host said.
West Texas Intermediate crude futures traded around $80.50 per barrel Tuesday. On Friday, the U.S. oil benchmark breached the $80 per barrel level for the first time since November 2014.
The rise in oil prices this year — WTI is up more than 60% year to date — comes as demand rebounds from pandemic-related slowdowns while supply remains tight.
While big American oil producers appear to be showing more discipline than previous price spikes, Cramer said Garner believes smaller, privately held producers have a greater willingness to drill and take advantage of the situation.
Last week there were 433 rigs running in the U.S., Garner noted, up from 172 in August 2020.
Garner also sees seasonal trends that suggest oil's rally could hit a wall and reverse course, Cramer said, pointing to a chart from Garner that shows oil's seasonal performance over the past 30 years.
"Seasonality's not the holy grail. The market often flouts these historical norms. However, Garner thinks it's significant oil rallied hard and then got overbought right before the time of year when it usually peaks," said Cramer.
Moreover, oil is approaching technical barriers that have materialized in a post-fracking world, Cramer said. Namely, he said, that is a ceiling of resistance around $84 per barrel.
"Unless we get some kind of major positive surprise here, Garner expects the oil rally to exhaust itself right here in the low eighties," Cramer said. "If she's wrong and we do get that breakout, she says the next stop could be $90, but she thinks that's very unlikely."
The momentum indicator known as the Relative Strength Index may also shed light on where oil is headed, Cramer said. Oil historically has rallied in "three distinct waves," Cramer explained, and when it is moving between peaks, the RSI tends to fall while oil's price goes up.
That's called "negative divergence and it's often a sign that the trend is about to reverse itself. Garner points out that this happened in 2014, 2018 [and] 2019 before major corrections, and now it seems to be happening all over again," he said.