US oil uptrend intact, IEA news impact temporary: Wang Tao

US oil will rise to USD 103.39 per barrel over the next four weeks as the bearish impact on prices from a move by the IEA to release oil from stockpiles is expected to be temporary, Reuters market analyst Wang Tao said.

The contract fell to a four-month low on Thursday after the International Energy Agency (IEA) said it would inject 60 million barrels of government-held stocks in the global market, immediately increasing world supply by some 2.5% for the next month.
On Friday, Brent crude rebounded by more than USD 1 from the four-month low as traders and investors attempted to gauge the actual impact the IEA release will have on supplies.
But according to technical charts, prices are still pointing north, Wang said, adding that the recent deep correction from the May 2 high of USD 114.83 had not violated a long-term uptrend that originated from the December 2008 low of USD 32.40.
"That is because the bull trend has been developing within a rising channel, and is currently marked as a wave "C" or wave (3), advancing towards the 100% Fibonacci projection level at USD 125.51, a target based on the length of the wave "A" or wave (1) that started at USD 32.40 and ended at the May 2010 high of USD 87.15," Wang said.

The wave theory is a powerful technical analysis tool invented by Ralph Nelson Elliott, who discovered that social or crowd behavior trends and reverses come in visually recognizable patterns, and financial markets are nothing more than a group psychology, which swings from extreme optimism to extreme pessimism or vice versa.

On the daily chart, Wang drew a rising channel which is expected to be valid over the next six months, as the structure of the wave "C" or the wave (3) indicates it has adopted a double zigzag mode which will only be completed after seven waves, to be labeled as "a-b-c-x-a-b-c".
So far only four of the waves have been completed, and thanks to the IEA move, the drop on Thursday has quickened the ending process of the wave "x".
Strategically, Wang emphasized that the bullish outlook had been based on a valid pivotal support at USD 83.85, the presumed wave "b" trough, a fall below which would violate the bullish perspective, and a bearish target at $70 would be established accordingly.
Earlier this week, Wang forecast more volatility for oil prices as they climb towards the May high at USD 114.83 per barrel over the next three months, adding that the US crude oil option at-the-money implied volatility could have bottomed around 25 and was climbing towards 44. Wang Tao is a Reuters market analyst for commodities and energy technicals. The views expressed are his own. No information in this analysis should be considered as being business, financial or legal advice. Each reader should consult his or her own professional or other advisers for business, financial or legal advice regarding the products mentioned in the analyses.