Energy Markets’ Volatile Week Continues

Crude oil rises 1.07% for the month to date

• Crude oil prices (/CL) swung between gains and losses in recent days around Saudi Arabian price cuts and U.S. inventory builds.
• Natural gas prices (/NG) have dropped more than 10% from this week’s high.
• Gasoline prices (/RB) suggest the U.S. national average is on track towards $3 per gallon soon.

It’s been a dramatic week in energy markets. News that Saudi Arabia would reduce the price of light Arab crude sold in Asia renewed concerns that global economic growth is slowing, pointing to a soft demand picture for energy.

The U.S. Energy Information Administration’s (EIA) weekly storage data offered a similar signal, with an unexpected rise in crude oil inventories. On the back of shifting weather forecasts, natural gas prices (/NGH4) have carved out 20%+ ranges this week alone.

The swings in price action have offered little by way of clarity. Crude oil (/CLG4), gasoline (/RBG4), and heating oil (/HOG4) futures continue to consolidate in ever-narrowing ranges. The surge in natural-gas prices failed at resistance, former multi-month support throughout 2023. Traders should not be deterred by the lack of clear direction.

/CL Crude oil price technical analysis: daily chart (May 2023 to January 2024)

Crude oil prices (/CLG4) have spent most of 2024 thus far oscillating around 72 and a series of lower highs and higher lows in recent weeks have catered to a symmetrical triangle forming on the daily timeframe.

The winnowing range suggests that directionless, range trading strategies are best suited in the short-term; to take advantage of high volatility (IV index: 29.8%; IV rank: 46.7), iron condors or short strangles may be optimal. Only upon a break of the triangle will directional strategies become appropriate again.

/NG Natural gas price technical analysis: daily chart (January 2023 to January 2024)

The sharp rally in natural gas prices (/NGF4) this week ran into former support turned resistance, an area around 3.400/575 that proved critical throughout 2023. The reversal from resistance has been equally dramatic, with /NGG4 now over -10% from its weekly high. For now, momentum is still positive: /NGF4 is above its daily 5-, 13-, and 21-EMA envelope, which is in bullish sequential order; MACD is trending higher through its signal line; and Slow Stochastics are still in overbought territory (despite starting to pull back). Volatility has barely crept higher in 2024 (IV Rank: 29.4; IV Index: 74.7%).

/RB Gasoline price technical analysis: daily chart (April 2023 to January 2024)

Gasoline prices (/RBG4) have traded sideways to lower since early-November, keeping intact a descending triangle that’s been forming since May 2023.

Like /CLG4, /RBG4 has seen a series of lower highs and higher lows emerge, suggesting that range trading strategies are appropriate in the near-term. Contextually, for the average consumer, given the lag and spread to prices at the pump, this means that the U.S. national gas average still on pace towards $3 per gallon in the coming weeks.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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