Last week, WTI crude oil prices climbed to $53.74 a barrel, maintaining the uptrend from $47.08, which began a month ago. But instead of continuing to the north this week, the market tumbled to $50.06 yesterday, momentarily sparking the debate about the oil glut and ineffective OPEC supply cuts. But oversupply has been around for over two years now and the fact that OPEC is not doing a very good job cutting production is nothing new, as well, so why did WTI crude oil prices rise to almost $54 a barrel in the first place? We will leave that to the news-interpreters. What we, as traders, are interested in, is the current selloff and the way to predict it. And since the news would only inform us about it post-factum, we chose to rely on the Elliott Wave Principle.
The chart below was included in the Elliott Wave analysis sent to clients before the market opened on Monday, April 17th.(some marks have been removed for this article)
As visible, the wave structure of the entire crude oil price development, plus the fact that the market went too far too fast, suggested the bulls were getting exhausted and a significant pullback was likely. There was also an ending diagonal pattern, also known as a wedge, in the final phase of the rally, which was another indication that it was not the time to be long crude oil. So while it was hovering close to the $53 mark, the last sentence in the analysis our clients received before Monday’s open was “a short-term corrective pullback to $51.00 could be expected.” The updated chart below shows how things developed.
Last week’s high at $53.74 was never touched again. The bulls proved to be even more exhausted than we thought, since the drop was even faster and dragged WTI crude oil prices lower than anticipated. While others blame OPEC for the supply glut, we thank Ralph Nelson Elliott for discovering the Wave Principle.
In conclusion:
- relying on the news does more harm than good in the markets
- Elliott Wave analysis can be a powerful ally
- you cannot use macroeconomic conditions to explain short-term oil price swings