Crude oil continues to trade in its ‘Triangle’

Brent Oct10.pngAn unnatural calm continues to dominate crude oil trading. Prices may move up or down by $2/bbl or $3/bbl a day, but then they always return to where they started, between the upper red line and the lower green one.

The blog has kept its promised eye on developments, since this trend of ‘trading in a triangle’ was spotted by Petromatrix last month. It also applies, as the chart above shows, to trading in the Brent oil contract in euros/bbl. And it has continued even with the US Fed’s QE2 Lifeboat policy about to start.

Thus there is still the potential for the sharp move, up or down, that technical theory would suggest, if either bulls or bears finally come out on top.

One of QE2′s major aims is to drive down the value of the US$, and increase inflation. And in turn, of course, this is supposed to force investors into chasing so-called ‘riskier’ assets. Thus they should buy commodities such as crude oil, as a supposed ‘store of value’.

The interesting thing, however, is that this promised vast flow of liquidity has indeed pushed up equity markets, and some commodities. But as the triangle shows, its positive impact on oil has been balanced by others’ sales.

Crude oil prices were already far too high, of course, relative to either today’s supply/demand balance, or natural gas prices. But they could still have gone higher. After all, as the eminent economist Keynes warned, ‘markets can remain irrational, longer than you can remain solvent’.

So today’s unusual calm in global oil markets, is perhaps trying to send us a message about future developments. The blog will continue to watch, with interest.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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