Post-Invasion Crude Oil Volatility Has Precedent
Following the Russian invasion of Ukraine, crude oil prices rose more than 40% in less than two weeks. But crude prices reversed thereafter and plummeted 28% in a week to just above where they were before the invasion began—and then leapt higher yet again. The volatility is enough to make a trader’s head spin, but analysts at Elliott Wave International say it’s not the first time that crude has had a rocky ride following a headline-grabbing invasion.
Murray Gunn, EWI’s head of global research, recently reminded the firm’s subscribers that after Saddam Hussein’s incursion into Kuwait in 1990, crude prices spiked over a matter of weeks but then got cut in half during the next five months.
Oil saw a similar rise and fall following Russia’s earlier invasion of Ukraine in 2014. Back then, prices drifted slightly higher for four months before crashing 75% over the next year and a half.
One might be tempted to conclude from this history that invasions are actually bearish for oil prices, but Gunn says the reality is not so simple. “Events are generally results of sentiment rather than creators of sentiment,” he explained. “Using the event to extrapolate what the market will do is like trying to drive a car while looking out the back window instead of the windshield.”
Gunn and his colleagues at EWI, the world’s largest independent financial market analysis firm, instead rely on technical analysis of markets’ price action to anticipate where prices will go next. Among Gunn’s favorite technical tools is the Elliott Wave Principle, a model of financial market price behavior first proposed in the 1930s.
“The Wave Principle doesn’t use events external to the market to anticipate prices. It doesn’t even consider supply and demand,” he said. “It allows an analyst to focus on what matters: the market’s price trends.”
When it comes to oil, EWI’s analysts have used the Wave Principle extensively to keep up with the market’s waves over the past 30 years. Readers can watch an overview of the history in a special video presentation on the firm’s website. (Free sign-up required.)
For more information about Elliott Wave International, contact the company here:
Elliott Wave International
PO Box 1618
Gainesville GA 30503