Trader’s Narrative

In June when crude oil closed above $138, I featured the chart below, showing that adjusted for inflation crude oil was not only exhibiting classic bubble behavior, but that it dwarfed previous oil spikes:

The next day as Texas tea ramped up the most dollars in its trading history, I mentioned that even if we looked at crude oil priced in gold, it was expensive:

…which would imply that if this ratio has any significance, a top in oil is close at hand.

It took a few weeks until the top was put in oil at ~$148 in mid July. But as of now it is down approximately 27%

A quick glance at the chart shows previous resistance, now support, at the round number $100. When or if, oil continues to fall, it will provide relief for the economy. As for whether the spike up was manipulation, normal market dynamics, a bubble, etc. I’ll leave you to explore that for yourself.

You can find a lot of links about oil and the price of oil here.

Last week I showed a long term graph of the price of crude oil adjusted for inflation. But some may disagree that that graph shows a complete picture since inflation can be misstated and since the US dollar is a worthless pieces of paper. Gold is real money. Or so I’m told. So let’s take a look at crude oil priced in gold:

Well, it turns out that even priced in that “currency” oil is expensive.

In fact, each time that the ratio of oil to gold spikes up, the price of oil (in dollars) falls. The first spike on the chart is in late 1990 and corresponds to the Persian Gulf war.

The next time was in late 2000 when crude oil peeked above $36 and then retreated. The ratio’s significance gets a bit wobbly in 2005 since oil didn’t find a top until the summer of 2006.

And finally, that brings us to today. Or rather last Friday when oil closed up the most dollars in a day in its trading history and hit the circuit breakers. Could the explanation be that the market smells war (with Iran)? Many believe so.

The above graph looks like it might have a slightly upward channel - which would imply that if this ratio has any significance, a top in oil is close at hand.