Slippery oil market

  • Cash crude oil prices dropped to new 2022 lows this week
  • Oil futures reversed large early rally on Thursday
  • Similar intraday pivots followed by upswings

Although energy is still the only positive S&P 500 sector this year, it’s also the only one that’s negative over the past month, and as of yesterday it was on pace to be the worst-performing sector of the week.

It’s no coincidence that it’s also been a volatile few weeks for the crude oil market, which has chopped up and down (mostly the latter) amid concerns about demand, OPEC production levels, and this week’s news of a $60/barrel cap on Russian oil.

Despite debate over whether the limit on Russian oil prices will be fully enforceable or have its desired effect, oil prices have fallen sharply so far this week:

Chart 1: January WTI crude oil (CLF3), 11/28/22–12/8/22. Crude oil futures price chart. Thursday rally lost momentum.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Thursday was particularly interesting. After four consecutive down days, January WTI crude oil futures (CLF3) initially looked like they were trying to turn the corner by jumping more than 4% in early trading, but they soon sold off to hit a fresh intraday low. (The chart shows the market as of 11:45 a.m. ET.)

That type of momentum loss—giving up a sizable intraday gain to close in the lower portion of the day’s range—would appear to be a bearish development, since it implies the market had second thoughts about its ability to push prices to the upside. And in a market in the grips of a larger downswing, that didn’t look like very encouraging price action for bulls.

It may not be, but take a look at what happened after five similar days over the past few months:

Chart 2: January WTI crude oil (CLF3), 7/21/22–12/8/22. Crude oil futures price chart. Past examples.

Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)

In each case, one day after falling to a one-week (or longer) low, oil rallied to a higher high, but reversed intraday to close in the bottom half of the day’s range. But in four of five cases, the market rallied for several days and gained at least $6 before turning lower.

One difference between yesterday and the other examples is that the market closed lower for the day and below its opening price on Thursday. In the previous instances, oil either closed higher for the day or above its opening price, even though it retreated toward the bottom of the day’s range.

A small detail, but those can be important when analyzing price patterns and gauging the potential for a market head fake.

Today’s numbers include (all times ET): Producer Price Index, PPI (8:30 a.m.), Consumer Sentiment (10 a.m.), Preliminary Wholesale Inventories (10 a.m.).

Today’s earnings include: Johnson Outdoors (JOUT), Li Auto (LI).


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1 Russian oil cap will work, EU ministers insist, despite Kremlin opposition and broad skepticism. 11/6/22.

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