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Why Is $26 a Crucial Psychological Support Level for Crude Oil?

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Key support level

West Texas Intermediate crude oil futures made lows of $26.55 and 26.21 as of January 20 and February 11, 2016, respectively, on a closing basis. After touching lows near $26, it rebounded. The first low of $26.55 was due to rising tension in the Middle East. The second low of $26.21 was due to the possibility of OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC talks fading. Near $26, crude rebounded more than 12% twice. However, it failed to sustain above the psychological price of $33.87. Again, crude (USO)(UCO) wasn’t able to sustain above $31 when it rebounded from $26.21. Technically, when asset prices move in a congested area, with lower highs and higher lows, the chances of a breakdown to the downside increases. Any breakdown from the level of $26 will add more woes to upstream companies such as Denbury Resources (DNR) and Kosmos Energy (KOS). They operate with a production mix that’s greater than 90% in crude oil. Other upstream stocks such as ConocoPhillips (COP), Anadarko Petroleum (APC), and others that operate with a significant production mix in crude oil also won’t be spared.

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Investors should note that during the subprime crisis, crude touched $33.87 as of December 19, 2008, on a closing basis. Going forward, the prices of $33.87 and $26 are crucial psychological support and resistance levels for crude oil. The other important price point for crude oil was near $17.45 during November 2001.

The above graph shows the price level of $26 for crude oil.

Next, we’ll discuss what factors can lead crude to different price levels.

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