What to Do About Oil

Today, we’re going to be reading oil’s price chart…

A useful way to think about it is by imagining oil prices like a runner tackling a massive set of stairs, each step a challenge, aiming for the top.

But our runner just can’t get past a certain level…

This runner’s journey gives us a clear picture of what’s happening with oil prices lately.

Let’s break down each time our “runner” couldn’t get past a certain stair…

First Peak, January 29 at $79.29: Our runner starts off strong, full of energy, and reaches an impressive height right at the end of January. But just as they near the $79.29 mark, they start to feel the burn. It’s like reaching the top of a big hill and realizing you can’t push any further. This first peak sets the stage, showing us that while ambition is high, the energy to surpass expectations starts to wane.

Valentine’s Peak, February 14 at $78.77: Come Valentine’s Day, our runner gives it another go. They’ve had a bit of rest, but as they approach $78.77, that familiar feeling of exhaustion kicks in. It’s a bit like trying to finish a race with a burst of speed, only to realize your legs aren’t as fresh as you thought.

Three More Attempts Around $78.50: Not one to give up, our runner tries, tries, and tries again. Each time aiming for that elusive $78.50 mark, but with each attempt, can’t seem to break through. It’s like every time they get close to the top, they’re met with a strong wind pushing them back. These repeated efforts around $78.50 show resilience but also reveal a pattern of hitting a wall.

Final Peak, February 22 at $78.93: Then, our runner musters all their strength for one last push. They get tantalizingly close to breaking past previous efforts, reaching $78.93. But just as victory seems within grasp, the energy fades, and once again, they can’t quite make it. This last peak is particularly disheartening because it shows that even with determination, there’s a limit to how far you can go without enough steam.

Each of these peaks tells a story – in our case, oil prices – trying its hardest to overcome a challenge. But with each attempt, running out of steam before reaching a new high. It’s a clear sign that while there’s a strong will, the physical limit is being tested.

This Is a Signal

For those of us watching this unfold, it’s a signal. If oil prices keep hitting these peaks but can’t break through, there might be a bigger slide ahead. It’s like the runner who, after several attempts, might need to take a longer break to recover.

From a macroeconomic perspective, the dollar is very strong right now, which makes oil more expensive for other countries. Plus, the big bosses at the Federal Reserve who control interest rates are being cautious. They’re unsure if they want to make borrowing money cheaper because they’re still worried about prices going up too fast.

Selling strength in oil here makes sense, and until we see oil prices land firmly above $80, I would hold off on any long-term positions.

If you decide the quick trade is for you, USO is a great place to look to go short oil or buy put options.

But remember, don’t let emotion or greed take over, and if you see oil start to go up above $79, make sure you exit before any significant move occurs.

Leveraging Data for You,

Brad Hoppmann
Analyst, Market Minute