English children have a nursery rhyme that seems to summarise price movements in Brent oil markets:
“Oh, The grand old Duke of York,
He had ten thousand men;
He marched them up to the top of the hill,
And he marched them down again.
And when they were up, they were up,
And when they were down, they were down,
And when they were only half-way up,
They were neither up nor down.”It describes a set of futile actions, which always end in the same place. As the above chart shows, this is what has been happening to Brent oil prices during 2011:
• They reached a high of $127/bbl in April
• They hit a low of $99/bbl in August
But overall, they have traded in the same range since January.
This ‘triangle pattern’ highlights the battle between the bulls, led by the high-frequency traders, and the bears, led by those who focus on fundamentals of supply and demand.
The bulls are making desperate efforts to push prices higher. Most recently, as in July 2008, they have suggested Israel will soon bomb Iran’s alleged nuclear facilities. The bears note that demand is slowing globally, due to today’s high prices, whilst supply is steadily increasing.
The triangle formation is normally followed by a major move, upwards or downwards, as either the bulls or bears come out on top. So the blog will continue to keep a very close eye on what happens next.