For decades, oil recession traders may have regarded oil as both a hero and a villain, recounting the magnificent fluctuations in supply and demand. The slippery black gold has become the main culprit of economic collapse more than once. In 2024, we stand at the edge of a cliff, with conflicting news and economic recession rhetoric spreading everywhere. We cannot help but ask: can the trajectory of oil development be predicted? Let's look back at the past and see how oil reacted during previous economic downturns.
The decline of oil began in the 1920s when the economy was increasingly imbalanced. During the Great Depression (1929-1939), oil resources were abundant and the market was stable, with prices hovering between $1.00 and $1.50 per barrel. But with the arrival of the Great Depression, this stable situation gradually disintegrated. By 1931, oil prices had plummeted to below $1 per barrel, followed by a long and tumultuous recovery. Under the impact of the economic recession at that time, the situation of oil was also not very good.
In the blink of an eye, the 1970s were marked by the 1973/74 oil crisis. At this point, the situation has reversed. Before the economic recession, oil prices remained at a moderate level of $3 to $4 per barrel. But the geopolitical tensions in the Middle East, especially the 1973 Arab oil embargo, caused oil prices to soar to $12 per barrel and triggered the subsequent global economic crisis.
Just as the world was finally cleaning up the mess, oil prices hit a historic high in 1980 due to the Iranian Revolution and the Iran Iraq War. In 1979, oil prices skyrocketed from $14 per barrel to $39 per barrel, but with the onset of an economic recession, oil demand weakened and prices began to decline.
The conflict also triggered the economic recession of the early 1990s. Prior to this, oil prices had been slowly and unstably rising. In the months leading up to the recession, oil prices dropped from a five-year high of $22 to $17. Then, two months before the outbreak of the war, oil prices rose again. Within three months, oil prices more than doubled, reaching a high of $39.51 per barrel, but this high was short-lived. Five months later, the price dropped to between $20 and $25.
Therefore, prices fell before the economic recession, rose in the early stages of the recession, and experienced a price correction within the first year of the recession.
In the 21st century, we began with an economic recession unrelated to the Middle East conflict - the Internet foam burst. Before the economic downturn in 2001, oil prices slightly decreased. As the financial industry accepted the fact that an economic recession was happening, oil prices briefly rebounded from $26 to $28. A month before the shocking tragedy of 9/11, oil prices plummeted and continued to decline until November, eventually falling to a low of $19.
Before the economic recession, oil prices experienced a slight decline, followed by a significant drop.
In 2007, oil experienced a rebound. In April, a major subprime mortgage lending institution filed for bankruptcy. In June, two major hedge funds faced serious financial difficulties. These events were all news at the time, but no one suspected them.
In July 2007, the stock market reached a historic high and oil continued to rise. Subsequently, the Federal Reserve intervened, injecting liquidity into the banking system and began a series of interest rate cuts later that year. From then on, everything was in chaos, but oil continued to rise until June 2008.
Subsequently, oil prices plummeted, dropping from a high of $140 to $41 in just six months. Anyone who still holds a long position in oil will definitely have a bad day. Firstly, there was a rebound before the economic recession, followed by a very brutal reversal.
Although 2014 was not considered a formal economic recession, oil did plummet from $105 to $48 that year. This is because the United States has made progress in hydraulic fracturing and horizontal drilling technology, which has significantly increased shale oil production. OPEC took a desperate gamble and did not cut production, resulting in a significant oversupply.
With the global industry and market entering the standby mode to get through the COVID-19 epidemic, similar oversupply will reappear in 2019/2020.
Before the economic recession, we experienced turbulent but bullish years time and time again. In the months leading up to the official recession, there was a brief decline in oil prices, followed by a historic rebound. And many times, these rebounds will suddenly come to an end, followed by a terrible collapse.
In terms of the timing of these events, when we look back at the past, we can easily identify ideal entry and exit points, but when we zoom in to the daily chart, we find that significant fluctuations could potentially crash many trading accounts.
If you plan to trade oil before the predicted economic recession in 2024, be sure to choose leverage carefully and consider price fluctuations when setting stop losses. As for the profit taking setting, setting too high a target may result in heavy losses for you, so it is necessary to moderately reduce profit expectations.
