From Turmoil to Trends: This Pattern in Predicting Oil Gains Amid Asian Economic Challenges

One might expect that geopolitical tensions in the Middle East would significantly impact crude oil prices. However, this has not been the case in recent months. A potential factor behind this unexpected stability in oil prices could be attributed to a weakening Asian economy, which is a significant consumer of Middle Eastern oil. Notably, Saudi Arabia, an essential oil exporter, sends 60% of its oil to Asia, with China, India, and Japan being the primary consumers. 

Trading Economics compiles official data which indicates that China's annual GDP growth is at 5.2%. However, there's widespread scepticism about the accuracy of China's reported GDP figures. A more telling indicator of economic distress is China's inflation rate, which currently stands at negative 0.8%—a level not observed since the 2009 global recession. This deflationary pressure signals potential underlying issues within the Chinese economy. 

Japan, the world's third-largest economy, has also shown signs of economic struggle, having recently entered a recession. This downturn in two of Asia's largest economies could explain the subdued impact on Brent crude oil prices despite the geopolitical tensions in the Middle East. The economic softness in Asia, particularly in countries that are significant consumers of Middle Eastern oil, suggests a decreased demand that may offset the expected rise in oil prices due to regional instability. 

However, the Brent Crude chart is telling us that the situation is on the cusp of change. In January 2024, the price crossed a trend line that had suppressed price since October 2023 (dotted line seen in the chart below). That was the start of the end of the downtrend.  

The price has since then formed an ascending triangle pattern when it reached a high of 83.54 in January and quickly declined without creating a new lower low. 

There could be many reasons why oil prices have stabilised, and the charts can't tell us why it is like that. It could be that they are pricing in better times ahead in Asia and the rest of the world or that more trouble is coming in the Middle East; OPEC+ could be getting ready to make changes.  

However, we know that when the price trades above the $83.54 level, the ascending triangle will be activated, and the pattern has a target of $92.20, a potential up-move of about 10%.  



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