Looking at longer-term charts of different commodities can sometimes be helpful in getting a general understanding of the big drivers that are influencing both the forex, stock, and commodity markets at any given time.
Today, I wanted to share a quick update on the oil market, which has recently started to make headlines in the press again. Let’s start by taking a look at the long-term weekly chart first to get some perspective as to where the market is right now, compared to the dramatic bear market from 2014.
Looking at the long-term chart, we can see that the price of brent crude oil has now recovered about two-thirds of the massive sell-off that happened between the second half of 2014 and the end of 2015.
At the same time, market commentators are finally starting to pay attention to what is happening in the oil market again. Since reaching a temporary low in June 2017, the oil market has seen what can be characterized as a remarkably stable uptrend, with several pullbacks along the way for traders to jump in on the action.
Since late August this year, the uptrend has been particularly strong, taking the price of brent oil from just over USD 70 to 84, an increase of almost 20%, in less than two months. That is a significant market movement for a commodity that usually doesn’t do much, and is often overlooked by traders.
Trump Fights Back
Although higher oil prices are great for trend-following traders who are long this market, others appear to be less happy about it.
US President Donald Trump is reportedly so upset about what damage higher oil prices might do to economic growth in his country that he called up the Saudi king in late September and demanded an increase in the supply of oil to the market in order to drive down prices.
It is, however, unclear what effect Trump’s phone call will have on the price going forward. After all, the same president has also reinstated a full trade embargo on Iran – a key oil producer in the Middle East – effectively removing a large portion of the supply from the market.
However, political rhetoric rarely scares market participants. Instead, all eyes are on the supply and demand of physical oil in the market. Without new suppliers coming online in the near future, chances are demand will remain greater than supply and prices will continue higher.
Technicals Point to Higher Prices
From a technical perspective, the oil price chart now looks like a technical analyst’s dream, with the price moving smoothly from the lower left corner to the upper right corner of the chart – the very definition of an uptrend.
In addition, three moving averages – in this case the 50, 100, and 200 day moving average – are nicely lined up on top each other, with price trading above all three. This is the exact type of set-up that trend followers look for before they enter their positions.
Despite the clear uptrend, however, short-term traders may be wise to wait for a pullback before entering this market. After the sharp uptrend in recent months, the market now seems overdue for a pullback.
This is also confirmed by the Relative Strength Indicator (RSI) in the bottom of the chart, which shows high readings at current levels. Looking back at the chart, all good buying opportunities during this uptrend have been marked by the RSI moving close to the lower end of the purple zone, a reading of about 30. When that happens again, we will likely see the next big inflow of traders to this market, all looking to ride the trend as the “black gold” continues on its journey higher.