Crude oil prices have continued to struggle today with Brent prices trading near three month lows. Recent weakness in commodity prices appears to be starting to act as a bit of a drag on equity markets more broadly, with the current weakness in Brent crude oil suggesting contrary to some indications that we may well have seen a short term peak in prices.

Not only have we seen weakness in oil prices this past two weeks, but copper and platinum prices have been declining over a much longer period. Oil prices also came under pressure on reports that the US would consider waivers on oil buyers in respect of Iranian sanctions, while talk of an SPR release hasn’t helped.

The sharp change in sentiment appears to have caught a lot of oil bulls off guard but the price action has been offering clues for several days now, the failure to take out the previous highs even when WTI made new peaks. Yesterday’s downgrade by the IMF suggests that future oil consumption or demand may not be as high as was originally thought at the beginning of the year.

It is undoubtedly true that concerns about price disruptions have helped drive prices higher in the past few weeks, with the Iran story being the primary catalyst as OPEC and Russia seeks to offset the loss of 3.8m barrels a day from the output story.

Saudi Arabia has sought to offset some of this and Russia could also weigh in as well, but with strikes in Norway and the risks of further disruptions in Libya and Nigeria the mood music should speak to a higher oil price.  The problem with this is, that none of the latter is anything new, oil supplies have always been prone to disruption in these regions, and they were a year ago when prices were at $50 a barrel.

Source: CMC Markets

The key is to establish how much of this is noise, and already priced in, and how much of this is not, and that is where the price action can offer important clues. For now prices are finding support above $71 a barrel, and while this level holds the odds still favour some form of rebound.

In the past week we’ve seen two large strong impulsive down moves which suggests that traders are more geared to a higher oil price than a lower one. This would suggest that far from getting a move to $80 as some oil bulls suggest, we could be at risk of a sharp move lower, through $71 a barrel, thus completing a double tip formation and targeting a move towards $62 a barrel in the coming weeks.

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