Oil gapped up on open, with Brent crude reaching $130.67 and WTI's high at $127.53. The price jumps reflect fears of supply disruptions due to the Russian invasion of Ukraine, with the possibility of a ban on Russian oil and natural gas now being considered. In an interview, US Secretary of State Antony Blinkin said, "We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil while making sure that there is still an appropriate supply of oil on world markets" (www.cnbc.com). Current sanctions have avoided bans on Russian oil exports. Nevertheless, buyers are presently avoiding Russian oil to a large degree.
The chart on the left is FXCM's CFD for Brent, UKOil. The CFD for WTI is on the right, USOil. Both instruments gapped up on open for this week on the potential Russian energy ban. We describe two scenarios:
- The runaway gap, with increased activity due to the expectation of higher energy prices and an excess demand in the energy markets. Traders who missed getting in earlier are now scrambling to take long positions. Runaway gaps are inherently emotional trades, and this may be the case here, given the Secretary of State's significant comments.
- The exhaustion gap happens at the end of price action, signaling the end of the current trend. These are often mistaken for runaway gaps. Exhaustion gaps are filled relatively quickly after forming. The key here is aggressive profit-taking after their appearance.
Both charts are overbought as per their individual RSI indicators (green rectangles).
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.