Closing the Gap: Will Oil's Descent Continue Post-Closure?
11 October 2023
In a world often rocked by geopolitical convulsions, the black gold—oil—often finds itself at the epicenter of economic conversations. This week, it has gyrated dramatically in the financial markets, strongly underpinned by the surging tensions in the Middle East. These tensions invariably ignite worries regarding supply, and like clockwork, we observed the price of oil bolting upwards, opening the week with a noticeable bullish gap. Monday continued this positive stride, but hesitation gradually crept into the market as the days advanced.
Fast forward to today, and the sentiment has palpably shifted. A robust bearish candle has entered the stage, aligning with the reversal and subdued sentiment we witnessed at the tail end of September and the outset of October. Within this period, Brent oil navigated from long-term highs, piercing through the $88 support, and plummeted to mid-term lows—all within a mere handful of days.
The vigor of this week's upswing tested the $88 mark, now acting as a resistance, and as evidenced today, it has spelled bad news for buyers and been a windfall for sellers. The price reflexively bounced, propelling significantly lower. Presently, the market is on a journey to close the bullish gap—a phenomenon frequently associated with the continuation of the movement that follows the closure.
However, my analysis is tinted with caution and perhaps, a dash of pessimism. Owing to the fact that we are lingering below the $88 resistance, my forecast posits that post the closure of the gap, we shall witness a continuation of the descent, prolonging the southward movement. The dance of oil, always a complex choreography of geopolitical, economic, and speculative movements, thus continues—sometimes predictably, and at times, surprising even the most seasoned of traders.