Crude oil has been very noisy in April, and May looks more likely than not to be more of the same.
WTI Crude Oil
Crude oil has been all over the place during the month of April and quite frankly, if you've lost money in this market, you are probably in the majority. We've seen crude oil reach the $118 area as well as the $79 area and now find ourselves as we close out the month hanging around the $100 region.
Ultimately this is a market that I think we will have to sort something out but as things stand right now the range is extraordinarily wide and the volatility in oil will continue to be a major problem with so many concerns out there when it comes to the Middle East. The Middle East, of course, has a major influence on what people see in the crude oil market and with this I think you have to recognize this as a market that remains at the mercy of the latest headlines coming from either Tehran or Washington DC.
Geopolitical Influence and Global Supply Dynamics
That will be the case going forward but I suspect that eventually things will have to settle down. Once they do crude oil will soften but you'll need to pay attention to the bond market. As the 10-year yield in America jumps above the 4.3% level it suggests that people are really starting to worry about the interest rate and the possibility that energy shocks could be a massive problem.
In this environment you have to look at this through the prism of people expecting major problems and that disruption of energy is going to continue to be a problem going forward. While there is plenty of production in the United States, the reality is that the global markets will be looking to export from the United States as we have already seen hundreds of tankers turnaround from their original destinations and head to the Gulf of Mexico.
In this environment it probably puts a bid in the crude oil market and traders are also starting to look at the fact that perhaps the Iranians may not be able to produce as much as they once did as crude oil needs to keep flowing in that country. They do not have a lot of storage otherwise you can damage the wells. In other words, while I do think that if the war stops oil prices will drop, the reality is that the floor is much higher than it once was and currently looks like it's $80. The ceiling at this point seems to be $120 and unfortunately if you are trading crude oil in the month of May you could very well see both of those.