The Psychological Levels (& More) of Oil

by Serge Berger | March 28, 2012 1:06 pm

Crude oil is up 6.4% so far in 2012 and up 40% since the early October 2011 lows at $75. Yes, it has been a substantial run — and one that likely will lead to some slowing in global growth.

The price per barrel of crude oil currently stands at about $105, so it’s above the psychologically important $100 print. Depending on which metric analysts use, the $110 print might matter more, as that is where the price of gas really starts to have an impact on the global economy.

With the national fuel price average at the pump currently around $3.90, the question is “What effect does $4 per gallon have on the consumer?” In short, likely a lot — especially given the still sluggish (albeit marginally improving) U.S. economy and still high unemployment.

$4 per gallon is psychologically important, but studies also show that it does have a bottom-line drag on the consumer.

A side note: The S&P 500 is up 12% so far in 2012 — in a straight shot. It likely won’t take much in terms of “slowing-growth” headlines to cut those gains in half.

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Let’s look at the technicals on the crude oil charts.

On the weekly chart looking back to 2008, we see a big wedge forming with an inverse head-and-shoulders pattern that could (if it works out textbook) bring oil up to the $130 point.

On the daily chart, we are consolidating in a bull flag pattern above that long downtrend on the weekly chart.

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We also are holding above the horizontal support line (the head-and-shoulders neckline) which served as resistance for much of 2011.

A decisive break below $103 should call us to $100 and $95, while a break above $108 — and hence out of the bull flag — gets us to $110 and $115.

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