It is always darkest before the dawn.
In other words, the energy market could see crude-oil prices tumble further in the coming days after closing near seven-year lows on Monday, when January West Texas Intermediate crude
tumbled $2.32, or 5.8%, to settle at $37.65 a barrel.
At least one chart pattern followed by technical analysts is pointing to more pain for the WTI contract as oil tilts below $37 a barrel in early Tuesday trade.
The so-called Marubozu formation is pointing to much lower trading levels for oil traded on the New York Mercantile Exchange, said Fawad Razaqzada, technical analyst at Forex.com.
In simple terms, Marubozu is a candlestick-chart pattern in which a security trades strongly in one direction and closes at or near its high or low. It is usually represented by a long candlestick, as we can see in the following chart below:
A Maribozu candlestick appeared in WTI oil on Monday.
A Marubozu candlestick pattern indicates that trading was driven entirely by buyers and sellers, and can offer a window into how the asset will trade in following sessions.
In the case of Nymex crude’s trading on Monday, the Marubozu trading pattern points to a distinctly bearish trend as traders unloaded their oil-futures contracts, driving the battered commodity lower, to close around the low of the day.
Razaqzada said that he’s expecting WTI to hit a possible low of $34.20/bbl., based on a Fibonacci extension level pegged to levels between August lows for crude and higher levels reached in October.
Offering a more optimistic view on Tuesday, Tom Kloza, co-founder of Oil Price Information Service, said he believes oil may be close to a bottom. “My hunch is that probably WTI is pretty close to a bottom—somewhere between the $32.60[/bbl.] or so that we saw in the Great Recession and where we are today,” Kloza told CNBC during an interview in the morning in New York. “This is the final innings I suppose,” he said.
Still, that would mean oil could see another drop of about $5, which could prove particularly painful for U.S. shale-oil producers. Read: Oil’s drop below $38 may cause a world of hurt for U.S. shale