Crude Oil 200-Day Moving Average: The Next Big Test

(Bloomberg) -- Here's a number that matters in the oil market right now: $40.76.

That's the 200-day moving average in the price of the 1st-month Nymex crude oil futures contract, per barrel. And it may be all that stands in the way of another jarring drop in the market.

So far this month, as evidence of a gasoline glut has grown, the oil price has crashed through its 50-day and 100-day moving averages, typically levels that can tempt buyers. The question now is whether it will find support at the 200-day average, about a buck-and-a-quarter below where oil is now. If the price falls through that level, then it could take a sharp dive. After all, the last time all three moving averages were taken out in short order was back at the start of the crash.

Of course, there's no real reason why a 200-day moving average should have any more importance than some other arbitrary number. But then again, we live in a world where the Dow hitting some round number provokes paroxysms, so it is what it is. People take their cues from all sorts of things. And hedge funds are clearly rethinking their enthusiasm after the spring rally, in what looks like a similar pattern to last summer.

Prices may yet bounce from the 200-day average. But with speculators nervous and refiners, the main buyers of physical crude, struggling with lackluster margins, the market could be heading for a late-summer slide.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Liam Denning in San Francisco at ldenning1@bloomberg.net.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.