Two Weeks Ahead of Crude Oil ‘s Jump to $110 a Barrel

Crude oil jumped above $110 a barrel a few hours ago after CNN reported that the Biden administration plans to refill the US emergency oil reserve. The Strategic Petroleum Reserve (SPR) would need replenishment after the release of 180 million barrels over six months in response to the energy crunch exacerbated by the war in Ukraine.

Apparently, the fact that refilling the reserve would actually take years did not matter to some traders, who rushed to panic buy right away. Their irrational reaction, however, did not come entirely out of the blue. To Elliott Wave analysts, the stage was set for a rally long before the news about the SPR’s replenishment broke out. For instance, take a look at the chart below, published in our April 20th EW PRO update on crude oil.

The hourly chart revealed a textbook five-wave impulse pattern, labeled i-ii-iii-iv-v, between $92.55 and $109.05. A three-wave correction follows every impulse. We thought the negative phase of the cycle was going to take the shape of a simple a-b-c zigzag, since this is the most common corrective pattern. The rest of wave ‘a’, followed by waves ‘b’ up and ‘c’ down had to occur before the uptrend could resume.

Since no correction is supposed to drop below the starting point of the impulse it corrects, this was the count to rely on as long as $92.55 held. In the absence of a breach below this key level, the overall outlook was going to remain bullish with targets above $109.05. Two weeks later now, we can conclude that Elliott Wave analysis successfully put us ahead of the news once again.

Wave ‘a’ bottomed out at $99.73 before wave ‘b’ lifted the price to $105.21. Wave ‘c’ turned out a little deeper than expected and dragged crude oil prices down to $95.02 on April 25th. $92.55, however, remained out of the bears’ reach the entire time. Instead, a sharp bullish reversal occurred. Ten days later, the price of crude oil climbed above the top of wave ‘v’ and to $110.31.