A deepening rout in global oil prices that has pushed Brent crude to near its lowest level in a year may run further, according to some technical analysts, even as one key indicator suggests the market is already oversold, Reuters reported.
On pace to post a fourth consecutive weekly loss, Brent fell by more than $2 on Tuesday, extending its losses over the past four weeks to more than 9% at $104.39 a barrel, the lowest since early April.
Brent has traded below that only three times in the past year.
While also on pace for a fourth straight weekly loss, the decline in US light sweet crude futures has not been as severe, but the front contract still slipped below the psychologically important $100-a-barrel level on Tuesday, and then below its 200-day moving average at $99.92.
"The near-term downside target is $97.25," said John Kilduff, a partner at Again Capital in New York, said in a report on Tuesday cited by the news wire.
Support might form in a congested area around $97.25 where the most recent reversal to upside occurred in May, said Kilduff, who added that a break of that level could send prices to the March low of $95.05.
The rapid pullback in prices may have been exacerbated by the retreat of big hedge funds and speculators, who had built up a record net long position of 398,746 contracts in US crude oil futures by June 22, according to CFTC data.
That is the equivalent to nearly 400 million barrels of oil. They cut nearly 50,000 contracts over the following three weeks.
"The extent and severity of the long liquidation is made more severe because there is nobody short, nobody left to buy the next dip," added Zimmerman.