It recently became clear that OPEC members have not been following their own output cut agreement very strictly, which could be an explanation of WTI crude oil’s sharp decline to $47.03 by March 22nd. But despite the continuing supply glut, the price of oil today is higher than $50.30 a barrel, following a sharp recovery from as low as $47.23.
The fact that the market is not always logical is nothing new and common sense often leads to the wrong conclusion. That the oil price is going to decline in a supply glut environment, for example. Luckily, the Elliott Wave Principle was there to prepare us for the exact opposite. The WTI crude oil price chart given below, was sent to our clients before the market opened on Monday, March 27th.(some marks have been removed for this article)
As visible, this week’s sharp rally did not came as a surprise. Instead of joining the bears near $48.10 on Monday, we thought it was time for the bulls to show up and lift the price to “around $50 a barrel.“ The reason why we took a contrarian approach was the wave structure of the decline between $49.59 and $47.03, labeled as wave b). It was a three-wave a-b-c. In other words – a corrective sequence. Our assumption was that WTI crude was in the middle of an expanding flat correction, where wave c) up was remaining. That is all.
The Wave Principle once again told us what the news could not. That selling was not recommended, because a significant oil price surge was very likely.
In conclusion:
- It is not all about OPEC
- Relying on the news is bad for you
- Price reversals can be predicted with the Elliott Wave principle
