When oil tankers in the Strait of Hormuz are exploding and burning, it’s not surprising to see the price of oil jump. What’s odd is how little it popped this week as news video showed flames and dark, billowing smoke coming off 2 ships making their way through that strategic narrow waterway.
The price of oil jumped 4% after the news hit, but then backed off to a mere 2% pop. At the end of the week, traders were paying less than they had paid at the beginning of the week. Also, there’s this: the industrialized world’s most required commodity is off by more than 20% since the late April peak price.
It’s almost as if petroleum market participants do not view the news as all that serious — or that deeper, more significant economic forces are at work. Here’s what the daily chart looks like for crude:
You can see that the price topped out at 66 in April and then dropped down below the uptrend line connecting the late December, 2018 low with the March, 2019 dips. It remains below the Ichimoku cloud level which is now down trending. A slight positive divergence may be forming on the relative strength indicator above the price chart.
Here’s how the weekly chart looks:
That’s quite a move from the low of just below 40 in August, 2016 to just below 80 in late September, 2018. Notice how the market gave almost all of it back last year during the 4th quarter. So now we’ve got 2 potential upside targets: that 66 high just hit in April of this year and that high of 76 from last fall. Those are the levels where sellers have shown up previously.
Here’s the monthly price chart:
I’d say the most significant bit of information from this monthly look is just how far the price of oil has fallen since just before the 2008 recession hit.
It’s never really completely recovered from that era. Each subsequent high has been lower than the previous — in effect, the downtrend continues. That needle-stick price candlestick in early 2016 suggests quite a bit of support at the 30 level if we ever get that low again.
And here’s a view of the old school point-and-figure chart:
This different kind of look gives a clear picture of the importance of the 43 level for the price of crude oil. It’s dropped down there 3 times over the last 3 years and each time, buyers show up and reverse the movement. You can also see clearly that the 2 potential resistance levels I mentioned above are apparent on this chart as well: at 76 and 66. That’s where the selling entered last couple of times around.
What’s surprising is how far down oil has fallen and that headlines about tankers exploding failed to ignite price back upward with any real force. If I were an intelligence analyst rather than a simple student of price charts, I’d be wondering why oil traders seem to be complacent despite these kinds of headlines.
I do not hold positions in these investments. No recommendations are made one way or the other. If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.