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The charts show oil’s upside potential is limited despite short-term rallies, says Jim Cramer.

CNBC’s Jim Cramer said Tuesday that while the price of crude could rise slightly, it would be limited in duration and scope, based on analysis from DeCarley Trading Commodity Strategist Carly Garner.

“The charts, as interpreted by Carly Garner, suggest that good news for oil can mostly be baked, meaning that upside potential is limited… Just be aware that while oil prices rise, they usually happen in the blink of an eye.” , oil sales are just as fast,” the Mad Money host said.

Before moving on to Garner’s interpretation, Cramer laid out two fundamental facts that investors need to know in order to understand the analysis.

  • The West Texas Intermediate crude oil futures contract is the main benchmark for the overall price of oil. It’s also “one of the healthiest and least volatile energy futures in the world,” Cramer said.
  • It is difficult to predict oil prices in wartime conditions. “We have a lot of political and economic turmoil, the end result of which is huge volatility in energy markets coupled with shocking moments of illiquidity… as traders react to limited oil and gas supplies in an attempt to hedge against inflation,” he said. said.

Cramer began his explanation of Garner’s analysis by examining the weekly chart of West Texas Intermediate oil.

WTI crude fell $1.80, or 1.58%, to $112.40 a barrel on Tuesday.

Garner says that measuring bull and bear markets by 20% swings shows that, according to Cramer, there are already annual price movements on the chart. “In early March, we saw 20% fluctuations almost every day. Since then, volatility has become less intense, but still wild compared to history,” Cramer said.

He also said that the price of WTI oil broke through the trend line resistance ceiling when Russia invaded Ukraine, while before that Widening wedge, according to Garner.

“If West Texas oil falls below $102, about $10 less than it is now, then we could potentially return to a wedge. If that happens, Garner believes it could lead to a mass liquidation that would bring oil back to $70. “, he said, adding that high prices and global efforts to curb inflation will ultimately dampen demand.

Cramer also studied the Relative Strength Index, a momentum indicator, at the bottom of the chart. “Even though it is currently showing growth, it is also approaching the overbought level. Garner believes oil may have more upside potential in the short term, but ultimately she sees prices return to levels we saw before Russia invaded Ukraine. I just don’t know how long it will take,” he said.

Further, the monthly WTI crude oil chart shows that since the widespread implementation of hydraulic fracturing, oil has had a ceiling at $120 per barrel, with prices rising briefly when Russia invaded Ukraine, but failed to close above this level on a monthly basis. . Garner doesn’t believe oil will break the $120 ceiling on its second try, Cramer said.

He added that the monthly relative strength index is already overbought. “This suggests that Garner oil prices have already risen and are vulnerable to a quick decline if traders ever have a reason to change course.”

Cramer then looked at the daily WTI chart, which he says shows that oil prices have gotten rid of the triangle pattern.

“This has catapulted oil higher and while Garner may see slightly more upside potential in the near term, there are also two resistance ceilings, one at $115 and one at $120. Also, over time, she expects Wall Street’s focus to shift from supply-side capping to the demand-side side of the equation,” he said, adding that he disagreed with her assessment.

“At this point, I think oil still looks good… As long as Russia is a rogue state, oil has a solid foundation,” he said.

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