It’s been quite obvious over the last few weeks that crude was looking for a direction.
It has been trading in a pendant shaped, tightening range, and in that situation any breakout beyond the initial support or resistance usually proves to be significant.
That is not because of any technical signal, but rather because a breakout in those circumstances suggests that the market has decided where its focus should be.
About 2 weeks ago, the price attempted to push high, only to fail and regain its pattern.
But, uniquely in this scenario, the problems in banking here and abroad are at the forefront of attention, as it echoes 2008.
As a result, crude has broken lower and is trading at levels not seen since the end of 2021…
Which prompts the question: “How low can it go?”
In the short-term at least, the answer to that question can be seen by looking at a multi-year, weekly chart…
Perhaps it’ll head towards the upper $50 handle?
Whether it does or doesn’t is probably dependent on factors outside of the energy sector, believe it or not.
As it stands, the banking problems look to be contained — so says the “G”. But we all know how unreliable their statements most of the time are.
You see, financial markets are built on confidence, and confidence is a function of emotion, not logic. At the moment, emotions are running high!
Assuming, though, that there is no overwhelming panic over the next few weeks, the rest of the news and data are actually quite supportive of oil’s prospects.
Even as the Bank of England warns of a recession in that country, the numbers in the U.S. remain strong, and China is still being boosted by the bounce back from their zero-covid era.
If, and it is a big if, the relative strength in those two countries is enough to avoid a full-on global recession, then oil in the $60-75 range makes more sense than a complete collapse.
Getting back to the original question regarding how low oil can go, the honest answer is that it is too early to tell.
That may seem like a bit of a cop out, or unsatisfying at best, but I learned during my dozen years trading this asset that knowing when not to make a decision is as important as, if not more important than, the ability to make one.
Traders draw conclusions from news and data for a living, so I always want to do that. But sometimes there is just too much up in the air to make a truly informed decision.