Oil has seen major volume since the start of the Russian invasion of Ukraine. It has risen and dropped at dramatic rates. Supply and demand issues have been the driver behind these fluctuations. Where is the price likely headed next?
The initial rally of Oil prices was mainly due to the ban and restrictions put on Russia at the start of the invasion. These bans have restricted the purchasing of Oil and other commodities. Russia is a huge producer of some of the most sought after commodities on earth. They are the third largest producer of Oil globally and rank 8th in the world as far as Oil reserves (80 billion barrels). These initial concerns about a reduction of global supply made Oil rise from $90 to $126.
As much as Russias supply issues caused worries, Shanghai helped reduce the supply/demand balance. China have always had a zero-COVID policy. This has led to a Shanghai lockdown as case numbers rose. Many think Beijing will be following suit very soon. China boasts the worlds second largest economy. The consumption of Oil in China ranks as the second highest in the world (13.2% of the worlds share). Lockdown across major cities has resulted in a lower demand for the purchase of Oil. This has helped the initial increase of prices from Russia’s supply woes to be levelled by the decreasing demand of Oil in China.
The chart below highlights the fluctuations in the price of Oil. We can see a consolidation of price over these two months. Symmetrical triangles or pennants form when the price converges with a series of lower peaks and higher troughs. These patterns will either lead to a continuation in trend (in this case a continuation higher) or they will reverse (prices head lower).
Also shown on the graph is a volume profile from the start of the Russian invasion. The volume at the bottom of the chart shows total volume within a certain period (this is a daily chart). The volume profile shows the volume traded at specific prices across this range. We can see that the range of $101-$104 is the largest zone for volume. The VPOC (volume point of control) is at $101.90. This level will likely act as support or resistance for a price.
The technical side of Oils price will help be an indicator in the next move. A break above or below this triangle will likely see more volume as traders enter for the move. However, most of these moves so far have been sentiment driven. Oil fell 5% on Shanghai and Beijing news. A fall of another 5% would see the price sit on the bottom of support, likely falling through.
We will be keeping Oil on watch to trade either way. Many Oil companies that are listed on the stock market will likely see a move in the same direction if trading stocks is a preference over commodities. News headlines will be key as to an indication of a major move.
The price (although volatile) is in consolidation or balance. Waiting for a change in demand or supply will be helpful in trading the next direction for Oil.