On September 14, Saudi Arabia suffered the worst attack on its oil facilities in recent times when a small army of drones attacked two major oil plants, destroying nearly 50 per cent of the country’s global supply of crude. Whilst the United States have blamed Iran for the attack, which they deny, the ‘Houthi rebel group’ based in Yemen have claimed responsibility.

The impact on the oil and wider financial markets was substantial, creating highly volatile trading conditions on the following Monday and Tuesday.

In this article we look to review the trading opportunities in the crude oil markets, in the days following the attack.

Crude Oil - Monday 16th September

When the oil markets opened late Sunday night (UK time), there was a large price gap. The closing price on the Friday prior was around $54.80, the market then opened on Sunday at $61.28, and subsequently reaching a high of $63.35. That is a jump of around 15% from the close on Friday.

During the rest of the day the market retraced 50% from the highs, reaching a low of $58,90, and then retesting the highs at $54.80.

*All quoted prices based on the CLV9 October US Crude Oil Contract

Crude Oil futures markets (CLV9), after the Saudi Arabia drone attack.

The two key trading levels from this day were:

  1. When the market retraced 50%. If you take the closing price on Friday 13th, and the high on Sunday night/Monday morning, and apply a Fibonacci retracement indicator, you will see the market pulled back 50%, before climbing again all the way to the highs. In general 50% and 61.8% are the key Fib retarecement levels to watch for.
  2. When the market tested the highs again. Later in the after the crude oil markets again reached the 63.4$ high price. This proved to be excellent resistance, and once reached the level was not breached, and prices began to decline.

These two key levels, the first support, the latter being resistance, proved to be excellent trading levels for low risk, and good reward trades.

As well as entering the trade at the correct price, it is important to have some methodology for staying in the trade as long as possible. For example a trailing stop following some form of moving average.

Crude Oil - Tuesday 17th September.

The following day was more volatile, as various news came from the USA on how they would assist in ensuring global oil supply was supported during the Saudi Arabia crisis. In order to see the best trading opportunity of the day, it is necessary to look at the Volume Weighted Average Price (VWAP).

The VWAP is a type of moving average that is weighted according to volume traded.

The chart below shows the VWAP in pink, with standard deviations lines either side.

As can be seen the markets sold off heavily once the US session had begun (afternoon in the UK). When a market sells off strongly, a key level to watch out for is the VWAP, here shown in pink. Often the market will pullback to the VWAP, before declining again, if there is enough volatility and volume in the market.

The chart shows clearly how the crude oil market pulled back to the pink VWAP line twice, failing to break above it, before the markets sold off strongly.

Trading the VWAP is another good risk/reward strategy.

Crude Oil Futures Market CLV9 Tuesday 17th September 2019. UK time

About the author

Trading and Investment

Traded the markets for over 15 years, including Commodities, Bonds, Currencies, Equities, and Indices. I have also worked as a Chartered Financial Planner.
CeMAP, CeFA, DipFA, AdvDipFA, Ba(Hons) Economics, Chartered ALIBF

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