Oil’s recent gains are the result of Elliott wave patterns, NOT weather patterns
by Nico Isaac
Updated: February 17, 2021
There’s a funny but true saying that goes something like,
“If you want to know whether to plan a picnic for tomorrow, don’t ask a meteorologist. Ask an energy market analyst.”
The reason is: Of all the “fundamental” factors supposedly driving oil prices, weather is in the top five; specifically, how certain weather events adversely affect the well-oiled machine of oil production.
Take, for instance, the events of February 15. On that day, crude oil soared to its highest level in 13 months. And, according to the swath of mainstream news reports, the single biggest catalyst for oil’s rally was the “monster” winter storms that ripped through the Gulf of Mexico over the weekend of February 13-14.
True: The record-shattering blizzard barreled through parts of western Texas, the nation’s black gold capital, freezing out 15% or 1 million barrels per day of oil the Permian Basin’s oil production. Here is one of the day’s headlines building a giant snow-bull on the storm’s back:
“Oil Prices Spike on Rare Texas Winter Storm – “The energy market is being hit with a perfect storm as extreme winter weather whacks the state of Texas and may linger for the next several days. (Feb. 15 Fox Business)
Make no mistake: The likes of the February 13 winter storm, named Uri, that struck the coast of Texas haven’t been seen in that region in decades. The area was pummeled by record-low temperatures and record-high snowfall, and the effects on energy industry’s infrastructure are catastrophic.
But as this chart of oil prices show, that storm didn’t strike until February 13, right at the end of the uptrend you see on this chart — the same uptrend that has been underway since late January.
To say oil’s recent rally to one-year highs is a direct result of Storm Uri is the kind of post-facto reasoning for price moves we often get with fundamental analysis. It sees this event de force, a historic winter storm in the heart of oil country and uses it to explain a giant rally in oil prices that started much, much earlier.
But if we zoom back to the start of oil’s recent surge, we do find the bullish writing on the wall of our January 22 Energy Pro Service. There, our chief energy analyst Steve Craig identified the start of a wave 5 rally to new highs and said:
“At a minimum, wave ((v)) of 5 should carry prices past the 53.93 continuation rebound high in five distinct waves… Resistance above there is sparse until 65.65.”
Note that our Energy Pro Service posted this forecast three weeks before the first drop of snow of Uri’s eventual blizzard touched the ground of West Texas.
From there, oil prices indeed followed their fifth wave rally script, soaring to the 13-month high of February 15.
According to the weather, another storm front is slated to hit the Texas oil region again later this week. But, as this example shows, for oil traders, the question as to whether oil prices are set to continue higher — or reverse — won’t necessarily depend on the unfolding storm; but rather, the unfolding wave pattern of market psychology on oil’s price chart.
Get in front of oil’s near- and long-term trend changes today with our Energy Pro Service.