Morgan Stanley technicals see $134/$150 upside risk for oil prices

Investing.com -- Oil prices could still face substantial upside tail risks even after the recent surge toward $120, according to a technical analysis from Bank of America.

Brent crude rallied above $100 and spiked to $119.50 on Monday, a surge that BofA technical strategist Paul Ciana says “fits the pattern of a short-term peak ahead of a consolidation/correction in price and volatility."

But even so, BofA’s technical framework continues to point to higher potential levels if markets remain driven by geopolitical or supply risks. "Headline driven tail-risk levels of $134/$150 remain possible even after the spike, though a lower probability post spike," Ciana said.

"We expect trading to stay headline‑driven, somewhat volatile and a higher range to form while tail‑risk targets remain a risk," he noted. 

In the medium term, however, the strategist expects a consolidation phase following the sharp rally. Brent’s move to around $120 coincided with the 76.4% Fibonacci retracement level, which Ciana said may mark the end of the current upward wave and the start of a correction or range-bound period.

If previous supply shocks are a guide, oil could trade within a narrowing range of roughly $90–$110 in the coming months while markets digest the recent price spike, Ciana noted.

"To reduce the possibility of a future wave up, we’d prefer to see oil form a top and/or fall below the wave high at $81.40 to shift wave patterns to a bearish scenario," he added.

He also highlighted that oil has been outperforming other major assets, with ratios of oil versus bonds, the S&P 500, copper and gold breaking higher in recent months.