Chart Of The Day: Trading Brent Crude’s Wild Volatility
2022.04.13 16:00
It’s been a wild ride for Brent oil traders as the commodity is being whipsawed by a cluster of fundamental headwinds potential tailwinds.
Russian President Vladimir Putin promised on Wednesday to continue the war against Ukraine after saying peace talks were “at a dead end.” The ongoing war will likely lead to additional sanctions against Russia, the world’s second largest oil exporter after Saudi Arabi, creating further supply disruptions.
Late yesterday, Vitol Group, the world’s largest independent oil trader announced it “intends to completely stop trading Russia-origin crude and products by the end of this year.”
Escalating COVID cases in China have been weighing on oil as well since the Asian nation is the world’s largest oil importer and the pandemic lockdowns have stifled demand.
On the opposite side of the equation, Iran’s supreme leader Ayatollah Ali Khamenei has expressed optimism on ongoing nuclear negotiations as oil supply concerns grow, potentially giving the Middle Eastern oil producer a stronger bargaining position. Should a deal be signed, Iran’s oil exports would resume.
Still, the outlook for tighter supply boosted the price of Brent crude by 6.26% on Tuesday as there’s a stronger correlation between the European North Sea derived commodity and events in Russia. Plus, at time of writing, Brent was up an additional 1.4%.
Recent oil price volatility has been more pronounced for Brent compared to WTI. Between the Mar. 1 low and Mar. 7 high, Brent rose 42%, while WTI only gained 40%.
On the way down from the Mar. 7 high to the Mar. 16 low, WTI lost 28% to Brent’s 30%. From the Mar. 16 low to the Mar. 24 high, WTI rose 24% to Brent’s 27%.
Only during their last move, from the Mar. 24 high to the Apr. 7 low, did both decline by about the same amount percentage-wise, roughly 20%. Their technical charts also look different.
Brent Daily
Whereas WTI is currently showing a Symmetrical Triangle, Brent’s pattern could more accurately be described and drawn as a Descending Triangle. However, even if a trader believes the Symmetrical Triangle better reflects the supply and demand equation for Brent, the price hasn’t penetrated as deeply into the triangle as it has for WTI.
The weekly view is even more bearish.
Brent Weekly
The RSI provided a negative divergence, a heads up for a downturn, and the MACD appears to be getting ready for a bearish cross, which would be a sell signal.
Trading Strategies
should wait for the triangle—however they interpret it—to complete with a decisive downside breakout and a return move in order to successfully retest the bottom of the pattern.
would wait for the same downside breakout and return move for an entry closer to the resistance of the pattern bottom, not necessarily for added trend confirmation.
could short immediately as the price retests the triangle top and falling trendline. However, a coherent trading plan, consistently adhered to, will determine the difference between winning and losing. Here is a basic example of a trading plan, though a customized strategy, tailored to one’s budget, timing, and temperament will significantly improve results.
Trade Sample – Aggressive Short Position
- Entry: $106
- Stop-Loss: $108
- Risk: $2
- Target: $98
- Reward: $8
- Risk-Reward Ratio: 1:4
