empty
fr
Assistance
Ouverture rapide de compte
Plateforme de trading
Déposer / Retirer

15.10.202120:33 Forex Analysis & Reviews: Oil: growth prospects, the cost of a mistake and its consequences

Long-term review

The main sensation in October was the rise in oil prices, which, contrary to forecasts, updated multi-year highs, which came as a complete surprise to many. However, in this article, I will not analyze the reasons for the rise in prices, but I will consider our reaction to the negative outcome of the event, which seemed very likely and obvious even at the beginning of September.

First of all, let's define that losses in trade and investments are normal, because no one knows the future, and we work in a probabilistic space. Therefore, it is not even important for us where the price went, but how we react to a position that goes in the direction opposite to an open deal. If we calmly accept the loss and continue to work further, this is correct, it should be so. If we continue to persist in our delusions and instead of cold-blooded calculation we begin to hope for a miracle, fearing to admit that we are wrong, then the consequences of our actions will inevitably lead to large, fatal losses.

At first glance, it seems paradoxical, but it is the art of "changing shoes" that determines whether we will earn money in the markets or continue to constantly lose money. That is why the rules of money management form the basis of any profitable trading system, and everything else - indicators, graphical patterns, analyst forecasts, this is an appendix to these rules.

I apologize to the reader in advance for the mentoring tone, but based on the practice of communicating with investors and traders, we have to state that the most common reproach on their part is that an analyst or consultant changes his shoes in a somersault and changes his forecast. I want to ask: how could it be otherwise? If the direction of movement has changed, how should the trader act? Continue to persist in your delusions?

A typical scheme of a novice trader's work - without having a trading system, after listening to or reading an analytical forecast, he opens a position of a huge size, and when the position moves in the wrong direction, instead of closing it on a stop order and fixing losses, he begins to multiply losses, move stop orders and make claims to anyone but to himself.

The absence of a trading system, the absence of money management rules, and an incorrectly predicted direction are three components of one mistake, two of which lie on the trader himself. Think about this before taking into account the forecast of any analyst or even a reputable institute. After all, only you are responsible for your money, and any article, including this one, is not an individual investment recommendation.

There is such a division of the US Department of Energy, called the Energy Information Agency, abbreviated as US EIA, the main source of information about trends and the direction of movement of energy prices. Possessing high-class professionals, huge arrays of statistical data, high-performance computing capacities, the Agency publishes a short—term forecast every month - Short Term Energy Outlook, which assumes the direction of oil price movement for the future from one to two years. This forecast is used by many companies, banks, analysts, investors, and traders, including me, in their work. Let's compare the September and October forecast of this agency.

Here is what the US EIA wrote in its short-term forecast in September 2021 regarding oil prices. "We expect Brent prices to remain close to current levels for the rest of 2021, averaging $71 per barrel, in the fourth quarter of 2021. We expect that in 2022, production growth in OPEC+ countries, dense oil in the United States, and in other non-OPEC countries will outpace the slowdown in global oil consumption and contribute to a decline in Brent crude oil prices to an average annual level of $66 per barrel." (Fig.1)

Exchange Rates 15.10.2021 analysis

fig1: Forecast of the dynamics of oil prices from the US EIA in September 2021

Now let's compare the September forecast with what the agency wrote in its forecast published on Wednesday, October 13th. "We expect Brent prices will remain near current levels for the remainder of 2021, averaging $81/b during the fourth quarter of 2021, which is $10/b higher than our previous forecast. The higher forecast reflects our expectation that global oil inventories will fall at a faster rate than we had previously expected owing largely to lower global oil supply in late 2021 across a range of producers. In 2022, we expect that growth in production from OPEC+, U.S. tight oil, and other non-OPEC countries will outpace slowing growth in global oil consumption and contribute to Brent prices declining from current levels to an annual average of $72/b." (fig. 2)

Within just one month, the error was about 15%. In September, it was assumed that oil reached its maximum, and within a month it added another $10 to its price. I can't blame the Agency's employees for the incompetence, it's just that not everything can be calculated even on supercomputers. However, those traders who sold oil without taking into account the possible negative scenario of the situation, simply relying on the authority of a structure respected by all, faced disappointment and significant losses, which continue to increase at the moment.

Exchange Rates 15.10.2021 analysis

Figure 2: US EIA Oil Price Forecast for October 2021

Exchange Rates 15.10.2021 analysis

Figure 3: Dynamics of Brent Crude Oil Price

We can, of course, express our indignation at the fact that the agency made a wrong forecast and continue to try to stop the growth of oil with our money, selling it against the trend, but I think that this is a futile occupation, because the money may simply not be enough. After the quote broke the "double top" formed in June-August, the prospects for oil may be very bright, and now there are no patterns on the chart, except for overbought, suggesting a trend reversal and a decline in oil prices (Fig. 3). This does not mean that the decline will not occur in principle, it means that the probability of growth is now higher than the probability of decline. At the same time, we should not forget that even a small probability tends to be realized sometimes.

However, when considering buying opportunities, we should remember that oil can fall much faster than it can rise, which means that compliance with the rules of capital management and setting stop orders are the necessary conditions without which we can again find ourselves at a broken trough. Be careful and follow the rules of money management.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Daniel Adler,
Analytical expert of InstaSpot
© 2007-2025
Benefit from analysts’ recommendations right now
Top up trading account
Open trading account

InstaSpot analytical reviews will make you fully aware of market trends! Being an InstaSpot client, you are provided with a large number of free services for efficient trading.

See Also

Forex News
  • 2025-04-28 21:58:50
    Euro Retreats from 3-Year High as Data-Heavy Week Begins
    2025-04-28 21:58:50
    Sterling Holds Close to 7-Month High
    2025-04-28 21:58:50
    Hong Kong Exports Growth at 14-Month High
    2025-04-28 21:58:50
    Hong Kong Trade Gap Largest in 6 Months
    2025-04-28 21:58:50
    Hong Kong Sees Significant Trade Deficit Rise in March 2025
    2025-04-28 21:58:50
    Hong Kong Records Sharp Rise in Import Growth for March 2025
    2025-04-28 21:58:50
    Hong Kong's Exports Surge in March Amid Global Market Fluctuations
    2025-04-28 21:58:50
    German Bund Yield Rebounds Ahead of Key Data
    2025-04-28 21:58:50
    Hang Seng Ends Muted After China Pledges Support Without New Stimulus
    2025-04-28 21:58:50
    UK Stocks Slightly Up
  • 2025-04-28 21:58:50
    Wall Street Slips as Big Tech Drags
    2025-04-28 21:58:50
    WTI Crude Oil Tumbles on Supply Glut
    2025-04-28 21:58:50
    Canada 10-Year Bond Yield Above 3.2%
    2025-04-28 21:58:50
    Brazil Sees Sharp Decline in Foreign Direct Investment in March
    2025-04-28 21:58:50
    Brazil's Current Account Deficit Narrows Significantly in March
    2025-04-28 21:58:50
    US 6-Month Treasury Bill Auction Yields Slight Increase to 4.065%
    2025-04-28 21:58:50
    U.S. Treasury 3-Month Bill Auction Sees Slight Decline in Yield to 4.200%
    2025-04-28 21:58:50
    Mexican Peso Hovers Below 19.6 USD
    2025-04-28 21:58:50
    Ibovespa Rises to 7-Month High
    2025-04-28 21:58:50
    Dallas Fed Manufacturing Index Lowest in Nearly 5 Years
  • 2025-04-28 21:58:50
    Wheat Drops to 8-Month Low
    2025-04-28 21:58:50
    Texas Manufacturing Tumbles: Dallas Fed Mfg Business Index Plummets to -35.8 in April
    2025-04-28 21:58:50
    Dollar Eases as Traders Brace for Busy Week
    2025-04-28 21:58:50
    Mexico Trade Surplus Biggest in More Than 2 Years
    2025-04-28 21:58:50
    TSX Rises on Election Day
    2025-04-28 21:58:50
    Wall Street Optimistic Amid Heavy Earnings Week
    2025-04-28 21:58:50
    Canada Wholesale Sales Expected to Contract in March
    2025-04-28 21:58:50
    French 12-Month BTF Auction Sees Slight Uptick in Yield to 1.905%
    2025-04-28 21:58:50
    France's 6-Month BTF Auction Yields Slightly Lower at 2.015%
    2025-04-28 21:58:50
    France's 3-Month BTF Auction Sees Slight Rise in Interest Rates
  • 2025-04-28 21:58:50
    Mexico Unemployment Rate at Historical Low
    2025-04-28 21:58:50
    Canada's Wholesale Sales Dip in March: Economic Uncertainty Looms
    2025-04-28 21:58:50
    Mexico's Unemployment Rate Ticks Down to 2.60% in March 2025
    2025-04-28 21:58:50
    Mexico's Trade Surplus Narrows to $1.035 Billion in March
    2025-04-28 21:58:50
    Mexico's Unemployment Rate Drops to New Low in March 2025
    2025-04-28 21:58:50
    Mexico's Trade Balance Surges in March, Reaches $3.442 Billion
    2025-04-28 21:58:50
    India's Manufacturing Output Sees Modest Growth in March 2025
    2025-04-28 21:58:50
    India's Industrial Production Inches Up to 3.0% in March, Continuing Gradual Growth
    2025-04-28 21:58:50
    India's Industrial Production Growth Sees Marginal Dip in March 2025
    2025-04-28 21:58:50
    TTF Prices Hover at 9-Month Low
  • 2025-04-28 21:58:50
    UK CBI Retail Sales Fall the Least in 6 Months
    2025-04-28 21:58:50
    Steel Edges Higher from 7-Month Low
    2025-04-28 21:58:50
    Macau Trade Gap Narrows in March
    2025-04-28 21:58:50
    Austria Manufacturing PMI at 3-Month Low
    2025-04-28 21:58:50
    French Jobseeker Numbers Decline in March, Prompting Cautious Optimism
    2025-04-28 21:58:50
    UK Retail Sales Rebound in April: CBI's Latest Survey Shows Promising Upswing
    2025-04-28 21:58:50
    Hong Kong Imports Growth at 14-Month High
    2025-04-28 21:58:50
    Uranium Edges Higher from 18-Month Low
    2025-04-28 21:58:50
    Brent Crude Oil Holds Below $67
    2025-04-28 21:58:50
    Italian BOT Yields See Slight Decline in Recent 6-Month Auction
  • 2025-04-28 21:58:50
    Euro Retreats from 3-Year High as Data-Heavy Week Begins
    2025-04-28 21:58:50
    Sterling Holds Close to 7-Month High
    2025-04-28 21:58:50
    Hong Kong Exports Growth at 14-Month High
    2025-04-28 21:58:50
    Hong Kong Trade Gap Largest in 6 Months
    2025-04-28 21:58:50
    Hong Kong Sees Significant Trade Deficit Rise in March 2025
    2025-04-28 21:58:50
    Hong Kong Records Sharp Rise in Import Growth for March 2025
    2025-04-28 21:58:50
    Hong Kong's Exports Surge in March Amid Global Market Fluctuations
    2025-04-28 21:58:50
    German Bund Yield Rebounds Ahead of Key Data
    2025-04-28 21:58:50
    Hang Seng Ends Muted After China Pledges Support Without New Stimulus
    2025-04-28 21:58:50
    UK Stocks Slightly Up
  • 2025-04-28 21:58:50
    Wall Street Slips as Big Tech Drags
    2025-04-28 21:58:50
    WTI Crude Oil Tumbles on Supply Glut
    2025-04-28 21:58:50
    Canada 10-Year Bond Yield Above 3.2%
    2025-04-28 21:58:50
    Brazil Sees Sharp Decline in Foreign Direct Investment in March
    2025-04-28 21:58:50
    Brazil's Current Account Deficit Narrows Significantly in March
    2025-04-28 21:58:50
    US 6-Month Treasury Bill Auction Yields Slight Increase to 4.065%
    2025-04-28 21:58:50
    U.S. Treasury 3-Month Bill Auction Sees Slight Decline in Yield to 4.200%
    2025-04-28 21:58:50
    Mexican Peso Hovers Below 19.6 USD
    2025-04-28 21:58:50
    Ibovespa Rises to 7-Month High
    2025-04-28 21:58:50
    Dallas Fed Manufacturing Index Lowest in Nearly 5 Years
Can't speak right now?
Ask your question in the chat.
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaSpot anyway.

We are sorry for any inconvenience caused by this message.