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Oil can be a complex one. There are numerous factors affecting the price of oil such as demand and supply which are the obvious factors but there is an added complication in that OPEC steps in from time to time to achieve a balance which may or may not have the right effect.
Oil is a measure of the state of global growth. Under ideal conditions where supply and demand are in a healthy balance we can often glean what the market thinks about oil and how it may affect future growth. If price is relatively low then it is not seen as a threat to global growth but the converse is that we see flat or declining energy/resource equity/future prices. If price was to get too far ahead of itself then it may be seen as a deterrent to growth but we might see equity and derivative prices climb even though overall equities might fall.
So let’s look at the chart and see what we can see. To a simple weekly line chart first as this gives us a big picture of where price stands in relation to recent history:
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We can see in mid 2008 that oil reached ridiculous heights – around US$145 a barrel – and this was just one of the many bubbles that was forming at the time:
If you can accept my word for it – oil has recovered 50% of the fall from the 2008 high and if we look at a daily chart we can see that it has been teetering a little at this 50% level:
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There is maybe another rally of sorts before a 50% top is finalized but we can see from the oscillator that the next move higher will not be all plain sailing.
If we go back to a weekly Elliott we can see though, that whilst there could be some short term move higher there is possibly a move lower in the second half of the year:
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And with that out of the way another leg up could follow.
The sort of outlook we see for oil mirror images many other markets – no big long term trends in play but rather volatility being more the hallmark of the year or so ahead.
Enjoy the ride
Tom Scollon
Chief Analyst
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