Correct us if we are wrong, but shouldn’t a supply increase lead to lower prices? Well, at least that was the cause and effect relationship OPEC has been relying on when they decided to increase oil production at a meeting in Vienna on Friday, June 22nd. In an attempt to put the recent oil price surge under control, OPEC and its allies agreed to boost production by up to one million barrels per day.
Alas, the market had other plans in mind. Instead of declining, oil prices skyrocketed. As of this writing, WTI crude oil is up by 4.24% for the day, while Brent is up 3.22%. But how to explain today’s rally in the price of oil? Obviously, economics 101 cannot help us here. The Elliott Wave Principle, on the other hand, actually managed to put us two days ahead of the market’s illogical reaction to OPEC’s decision. The chart below was sent to subscribers on Wednesday, June 20th.
At the start of the week our short-term outlook was bearish, as well. However, the bears’ failure to accelerate to the downside told us that a change of plans was necessary. That change was the chart shown above. It suggested that as long as the price stayed above $63.57, WTI crude oil was likely to jump in wave “c” of an expanding flat correction wave B. According to the theory, wave “c” had to exceed the top of wave “a” of the same pattern, which turned $68.64 into a reasonable bullish target, giving traders an acceptable risk/reward ratio of 2. Two days later, the updated chart below visualizes crude oil’s OPEC-inspired surge.
WTI exceeded its initial target earlier today and is currently hovering around $68.90. Popular financial media is trying to justify the rally by saying that the market is pricing in the possibility that OPEC will only be able to increase production by 600 000 to 800 000 barrels per day. We have to admit this makes sense. The problem is you have to turn back time in order to take advantage of such after-the-fact explanations. If that is not in your power, keeping an Elliott Wave perspective is the next best thing to do.
What will WTI Crude Oil bring next week? That is the subject of discussion in our next premium analysis due out late-Sunday!
