Oil Prices Hang in Familiar Trading Range

By:Christopher Vecchio, CFA

They aren’t moving much despite OPEC+’s efforts, the ebb and flow of U.S. inventories, and geopolitical concerns about the Middle East

Crude oil prices (/CLH4) are holding in positive territory this week, but have traded in a familiar consolidation for the better part of the past two months.
Natural gas prices (/NGH4) have plunged by nearly -20% over the course of the week.
Similar to oil, gasoline prices (/RB) remain in a multi-month range.

Fig. 1: Week-to-date price percent change chart for /CL, /NG, and /RB

Market update: crude oil up 2.36% month-to-date

An explosive start to the year for energy markets was met with a decidedly quieter news flow in recent days. OPEC+’s ineffectual efforts, ebbing and flowing U.S. inventories, and geopolitical concerns about the Middle East all remain on the field of play, but nothing of any material impact emerged along any of these fronts this week.

That said, it was still an interesting week for traders, particularly those who have been operating directionally in natural gas (/NGH4) or directionless in crude oil (/CLH4). The trading conditions that have prevailed in recent days are likely to continue, barring a dramatic turn of events among those three catalysts.

/CL Crude Oil Price Technical Analysis: Daily Chart (May 2023 to January 2024)

Nothing has changed for crude oil prices (/CLH4) in recent days, having “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,” as noted last week. It remains the case that “the winnowing range suggests that directionless, range trading strategies are best suited in the short-term.” There is still relatively high volatility (IV Index: 39.4%; IV Rank: 40.9), making it reasonable to keep employing iron condors or short strangles as strategies. Likewise, “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 astounding rally in natural gas prices (/NGH4) through the first two weeks of January was short-circuited this week, with a loss around 20% thus far. The uptrend from the intramonth December swing lows has likewise been broken. Momentum has turned bearish quickly: /NGH4 is below its daily 5-, 13- and 21-exponential moving average (EMA) envelope, which is now in bearish sequential order; moving average convergence/divergence (MACD) is trending lower below its signal line after a fresh bearish crossover; and slow stochastics are nearing oversold territory. Volatility is receding (IV Rank: 33.7; IV Index: 71.2%) during the pullback, suggesting the decline is orderly and not ‘panic driven.’

/RB Gasoline Price Technical Analysis: Daily Chart (March 2023 to January 2024)

Much like in oil, gasoline prices (/RBH4) have not changed that much in recent days, “keeping intact a descending triangle … similar to /CLH4, /RBH4 has seen a series of lower highs and higher lows emerge, suggesting that range trading strategies are appropriate in the near-term.” Perhaps more important for the average consumer, given the lag and spread to prices at the pump, it remains the case that the U.S. national gas average is on pace toward $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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