WTI Crude Oil has found a bottom just above $95.
Oil prices rise and fall like almost everything else. Now, for good reason, they are well below last month’s peak and are unlikely to be back up anytime soon.
WTI crude is down about 25% to just under $97 a barrel after hitting a multi-year high of $130 on March 8, the day the US banned Russian oil imports and Britain promised an exit. The price is still above the $89 level on Feb 10, just before Russia clarified that it would invade Ukraine. The war began on February 24th.
Sanctions, of course, limit the supply of a good and raise its price. But the drop in oil prices comes as other European allies are much more dependent on Russian oil and wrestle with how – or whether – to sanction the Kremlin. Also, the Biden administration is putting a million barrels of oil reserves on the market every day to give drivers a break at the pump.
Oil’s decline from the top follows the pattern of how the price has behaved historically.
At $130, oil was more than double its 24-month moving average of $57 on March 8th. That $130 level was also higher than the top fifth percentile of prices compared to its 24-month moving average, according to Evercore data.
In the past, when the price of oil has risen, it has also tended to fall quickly. Oil has traded at such high levels six times since 1975 – and each time the price plummeted at breakneck speed after hitting the top. At times, this dip resulted in the price sitting at its 24-month moving average.
“The cure for high prices is high prices” seems more than theory but reality, wrote Julian Emanuel, equity strategist at Evercore.
Of course, none of this means oil won’t go up from here. But WTI Crude has found a bottom just above $95 for the past few weeks, suggesting buyers are still stepping in for more gains. They expect a slightly higher price in a few weeks or maybe a few months. That keeps the price near its 50-day moving average of around $99, a short-term measure of what oil has been doing lately.
As long as the price remains fairly elevated, “we should continue to expect a higher top,” wrote John Kolovos, chief technical strategist at Macro Risk Advisors.
So maybe oil and gas prices will stay high for a while longer. But consumers — and the stock market — can breathe a sigh of relief that the price of oil isn’t going to rise as it did before anytime soon.
Write to Jacob Sonenshine at [email protected]