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There's no question that oil is volatile. It's up one day and down another, it rises when demand increases and when OPEC + (which means the Organization of Petroleum Exporting Countries plus Russia) cuts production, and it falls when global growth slows or if OPEC + increases production.
Trying to track the fluctuations is another form of market "noise," like what's been happening in the options market lately. I've been talking about that a lot, and it's important for you not to get distracted by it.
Instead, to make money on oil, you need to understand the long-term trend - where oil is going overall, and how it's going to impact inflation, interest rates, markets, and your money.
And that trend? Up. The price of oil is still going to fluctuate, but it's going to fluctuate in an elevated range and go higher, fluctuate in a higher range, and then go higher again.
The Volatility Curve
WTI (West Texas Intermediate), the American oil benchmark (Brent Crude is the rest of the world's benchmark) has always been volatile, with Brent closely tracking it.
Through 2018 -2019, WTI averaged around $61 per barrel (a barrel holds 42 gallons).
During the Covid pandemic, with global growth at a standstill, WTI fell down to around $19 in early March 2020.
By January 2021, it recovered to $60 a barrel. By September 2021, it got to around $83. Then it fell to $66 in early October 2021. It then shot straight up, close to $115 by the end of February 2022.
All that volatility was due to demand fluctuations caused by a growing global economy, Covid lockdowns, and a recovery in global growth and demand.
This continued through the middle of 2022 - WTI fell from $115 to around $105 in early March, rose again to near $114 by the middle of March, then fell to around $98 by the end of March.
Then it rose again to just north of $120 by the end of May 2022.
Coinciding with most of the world's central banks following the Federal Reserve's first meaningful rate hike starting in March 2022, and proceeding to raise at every subsequent FOMC meeting, oil fell to below $79 by mid-September 2022. Not withstanding oil's spike when Russia invaded Ukraine on February 24, 2022, when it shot up from $98 to $120, it's managed to come down and now appears to be trading in a range between $85 and $92.
That range is well above where oil traded in 2018 and 2019. And it could trade lower, maybe to $78 if global growth continues to slip and demand falls. But any dip from here will be short-lived, as central banks will see signs of slowing inflation accompanying a slowdown of global growth and demand.…
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.