Here we go again. The last time hurricanes had something to do with crude oil, the price of the commodity, according to popular media, was rising because producers were bracing for Irma, whose record-breaking winds were going to severely disrupt production. That at least made sense at the time. Now, oil producers are preparing for hurricane Nate, which is expected to hit the Gulf of Mexico as a Category 1 storm. Oil, however, does not seem to care about the weather anymore as it declines from last week’s peak at nearly $53 a barrel to as low as $49.08 earlier on Friday. How come?
Relying on the weather forecast to guide our trading decisions does not sound like a very good idea. Instead, we prefer to apply the Elliott Wave Principle on the price chart of the instrument in question and look for the patterns the market uses to reveal its intentions. The chart below was included in our mid-week updates, sent to subscribers on Wednesday, September 27th.(some marks have been removed for this article)
As visible, if you only forget about the hurricanes and take a look at the situation through the Elliott Wave prism, crude oil’s decline is not such a big mystery anymore. From the bottom at $45.62 up to $52.83, there was a three-wave rally. According to the theory, only corrective moves consist of three waves. Also, after carefully analyzing the bigger picture we thought this three-wave rally was probably not going to evolve into something more than that. In addition, it has been developing between the parallel lines of a channel, whose upper line has already been reached. Therefore, instead of joining the bulls above $52 a barrel, we thought a bearish reversal should soon be expected. Eight trading days later, here is an updated hourly price chart of WTI crude oil.
As expected, the price of oil slightly breached the upper line of the channel a couple more times, but eventually the bulls surrendered on September 28th. From then on it was a bear party. By the way, as if the approaching of hurricane Nate is not a strong enough reason for crude oil prices to recover, Saudi Arabia and Russia announced new measures to balance the oil market today. Alas, this did not help either, as oil tumbled the most in nearly a month and looks poised to close the weekly session near $49.30.
So instead of tracking the path of hurricanes or constantly listening to what OPEC or Russia have to say, we turn our attention to the market itself. Its opinion is what really counts in the end.