LONDON (Reuters) - An 18 percent rise in oil prices in just five weeks to $65 a barrel should mean the bull run is on its last legs but technical analysts say there is still more strength ahead due to geopolitical tension and tightening crude supply.
Technical analysis, using historical chart patterns to determine the next likely price move, is one way of taking a view on where the market will head.
At $64 a barrel, Brent futures <LCOc1> are about $1.70 a barrel above the five-day moving average, a gap PVM technical analyst Robin Bieber said was usually too wide for comfort.
"Anything over $1.40 is normally too much and ... gaps of this size make for immediate tricky trading conditions as the bulls' resolve is tested by nasty dips," he said. (Graphic: Brent crude rally - marathon or sprint? - http://reut.rs/2hin4fZ)
But he said any drop near the 5-day moving average was a buying opportunity, adding: "The trend is up - stick with it."
One factor suggesting the market can stretch beyond the normal technical moves is a political shake up in Saudi Arabia, the world's biggest oil exporter where the authorities have detained royals, ministers and prominent businessmen, moves seen as consolidating Crown Prince Mohammed bin Salman powerbase. (Graphic: Bullish Brent crude charges at technical indicators - http://reut.rs/2zk9Lmf)
That news follows a four-month buying spree by funds, which have more than doubled their position to a record high - betting that oil output cuts by the Organization of the Petroleum Exporting Countries and its allies will further tighten supply.
Commerzbank's commodity analysts said the price surge left the market vulnerable to a downward correction, in theory.
"That said, the current news backdrop argues against any correction in the near future: the latest developments in Saudi Arabia justify a risk premium on the oil price," they wrote.
The oil market has entered new territory that is testing investor nerves, however, after a price rally for 17 trading days in the past month, a climb not achieved since early 2013.
The relative strength index (RSI), measured on a scale of 0 to 100, denotes if an asset is overbought once it breaches 70, while it is considered oversold below 30.
The RSI on Brent is now at 75, a whisker below September's high of 78, when the market was at its most overbought in four years and prices dropped 7 percent in the following two weeks.
But technical analysis is a not a perfect guide.
"Saudi Arabia is the largest oil (exporter) in the world, and dealers don't want to call their bluff," said CMC Markets strategist David Madden.
If Brent could hold gains above its 200-week moving average, now at $62.71, he said: "We might see further gains."
(Reporting by Amanda Cooper; Editing by Edmund Blair)
