The explosive move is yet to come

“It is the worst ever shock in terms of the one-day price jump”! This is what has been reported all over the world early this week and you must know what I’m referring to. Yes, it is about the crude oil, which shot up 15% on Monday following the weekend drone attacks to the Saudi Arabia oil fields. It is truly an oil shock that has rarely occurred. While I don’t want to claim any credit for myself for predicting such an extreme oil price move, I did told my friends about two weeks ago that I thought oil had broken out to the upside based on its recent price actions and likely it is on the move to more upside. You can say it is a pure lucky coincidence but believe or not, TA often knows something in advance that we human beings won’t know. Of course, I don’t mean it can tell what will exactly happen but it can often foresee the direction of the next big moves that can be triggered by whatever reasons. That’s why I’m so fascinated by TA now as personally I do believe it helps a lot for my trading.

Back to oil, the million dollars question is whether this oil price jump has already done its work and we have seen the highs for oil? Short term volatility will continue for sure for oil but I think oil may have a lot more upside to go from here. One immediate potential catalyst will very much depend on how the next steps US/SA will do as retaliation for Iran, the presumed black hands behind this attack although it has vehemently denied. If any military actions are involved, we can easily see a $70 oil in hurry. But this is till nothing for what may come next and I think we may see $200 oil if the worst comes true. Here is some history you need to know about “Oil Shock”. If you are not aware, we have seen two previous oil shocks, both triggered some crisis in the Middle East: First in 1973 due to the Arab-Israeli War resulting in an oil embargo. The other one in 1979 following the Iranian Revolution. What happened both times in terms of the oil price? They both jumped by 300+% virtually overnight! Based this historical experience, I won’t be surprised to see the next oil shock price around $200 if the worst comes worst.

So what will be the worst case scenario in the current situation? Well, as you all know, Iran has been largely cornered right now by the US sanctions and it is increasingly in a desperate mood. So we have seen it started to shoot down the US drone and attacked oil tanks in the Gulf. I won’t be surprised if Iran is also the real guy behind this SA attack. You see, it is doing something already quite aggressive and we cannot say it won’t do something more drastic. This will really post the risk of miscalculation by all the parties involved, which could involve some sort of military actions, especially if Iran is directly attacked by the US and allies like SA and Israel. If this happens, one extreme card Iran may play with is to totally block the famous Strait of Hormuz, the narrow pass way controlled by Iran and is critically important for about 30-40% of the oil supplies for the world that are coming from SA and various other ME oil countries. If oil can jump instantly just by about 5% of the supply disruption, why it won’t triple if 40% of the supply is blocked? Yes, eventually US has the military capability to reopen the Strait but it will take weeks, if not months to do so, not mentioning how much causality will also be involved. It will be a very scary moment if that really materializes. I’m not saying this is a very likely scenario to happen. So far I must give credit to President Trump for quite contained reactions to Iran’s aggressions so far.  But I won’t simply say the chance is zero, based what we are seeing now. The risk is just too high to ignore, folks! Considered you are warned!!