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Next Stop for Oil - $88.55

Wondering how much lower oil can fall? How about $88.55.

Top energy trader Addison Armstrong says the next key technical level to watch is $88.55, a Fibanocci level. “It’s the 61% retracement of the October to March rally,” says Armstrong.

And moves in the dollar/euro cross could provide valuable insights as you try to anticipate whether those levels hold or break.

“The trend lines between the euro/dollar and oil have been cemented over the past few weeks. As the euro sank below 126, it was very negative,” he says.

That’s because a stronger dollar makes commodities nominated in dollars such as oil more expensive for buyers using other currencies.

Also, if you’re hoping that forthcoming economic data sends oil back on its march higher – you may be disappointed.

Armstrong says it seems a lot of the premium in oil earlier was due to concerns about Iran, which have started to abate – and not a bet on the recovery.

“There was a lot of conversation about supply disruptions in the Mideast,” adds trader Mike Khouw. Now that seems much less likely.

“And don’t forget there’s a lot of production going on in North America. Kansas alone may have 15 billion barrels of reserves."

Increased supply would also be bearish for crude.

You can find our conversaton with Armstrong about 10 minutes into this video clip.

Posted by CNBC's Lee Brodie



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