BRENT CRUD OIL 2004 – 2025, $/BBL
The “triangle” is one of the most reliable ‘technical’ indicators in commodity markets.
It highlights the battle between the bulls and bears, and describes how the range is narrowing – until one side “wins” and the other side gives up. At which point, prices usually start to move a long way.
It has certainly proved a good guide to oil markets in recent years, as we have monitored here.
JULY 2014 WAS THE FIRST EXAMPLE
In July 2014, we questioned whether “the oil price triangle was close to cracking?”
“As (the chart) shows, this has led to the largest triangle shape in history. Essentially what happened was very simple:
- Every time we reached the top or bottom of the triangle, the technical traders took that as a signal to move in the opposite direction
- But at some point, clearly, the triangle will be broken
- As and when this happens, prices are likely to move a long way before pausing for breath”
The following month, the triangle was clearly broken and we suggested a collapse from >$100/bbl to $70/bbl was highly likely. Prices reached this level in December, when we forecast a further downwards move to $50/bbl.
In January 2015, we then forecast prices would bottom close to “historical levels of $25/bbl to $40/bbl”, which duly occurred.
JANUARY 2020 WAS THE NEXT EXAMPLE
BRENT CRUDE OIL, 2000 – 2020
In November 2019 we suggested a second triangle might be forming:
“It’s still too early to forecast which way prices will go, when they finally break out… But their failure to break upwards in the summer, when the bulls were confidently forecasting war with Iran, suggests the balance of risks is now tilting to the downside.”
March 1, 2020 then saw the second triangle break, when we warned “Oil markets hit perfect storm as coronavirus cuts demand”, adding:
“It’s been a long journey for the triangle, stretching back to the pre-Crisis peaks at nearly $150/bbl in the summer of 2008. And the bottom of the triangle was made back in 2016, after the last collapse from 2014’s peak of $115/bbl .”
And very soon, as the Covid pandemic raged, Brent and particularly WTI prices began to collapse.
We saw the US market as most exposed, whilst most commentators were expecting a quick rebound. In April, our forecast was confirmed:
“A month ago, we forecast here that oil prices would go negative in Q2, for the first time in history. Last Monday, the May contract for WTI, the main US benchmark crude, closed at -$36.97/bbl, much to the world’s surprise.”
NOW THE 3RD TRIANGLE IS THREATENING TO BREAK
One key issue, as the chart shows, is that oil price collapses are also leading indicators for economic risk.
As the International Energy Agency warns in his latest report:
“New US tariffs, combined with escalating retaliatory measures, tilted macro risks to the downside.”
At the same time, political risk is also ramping up to levels not seen since the end of the Cold War in 1989. Trade wars are adding to the risks created by the military wars in Ukraine and the Middle East. And tensions remain high over Taiwan.
Prudent companies and investors will be preparing for difficult times ahead, whilst still hoping for the best.