Exness platform analysis For decades, oil recession traders may have seen oil as both a hero and a villain, narrating the magnificent waves of supply and demand fluctuations. Slippery black gold has been the culprit of the economic collapse more than once. As we stand on the edge of a precipice in 2024, with conflict news and recession rhetoric spreading, we can't help but ask: Is the trajectory of oil predictable? Let's look back and see how oil reacted in previous recessions.

The wave of oil recession began in the 20s of the 20th century, when the economy was increasingly unbalanced.  At the time of the Great Depression (1929-1939), oil was abundant and the market was stable, with prices hovering between $1.00 and $1.50 per barrel. But with the advent of the Great Depression, this stability gradually collapsed. By 1931, oil prices plummeted to less than $1 per barrel, followed by a long and turbulent recovery. Under the influence of the economic recession at that time, the oil situation was not very good.

Fast forward to the 70s of the 20th century, and the oil crisis of 1973/74 was marked by this decade. At this point, the situation has been reversed. Before the recession, oil prices remained at a moderate level of $3 to $4 per barrel. But geopolitical tensions in the Middle East, particularly the 1973 Arab oil embargo, caused oil prices to soar to $12 a barrel and triggered a later global economic crisis.

Just as the world was finally picking up the mess, oil prices hit a record high in 1980 due to the Iranian Revolution and the Iran-Iraq War. In 1979, the price of oil soared from $14 to $39 a barrel, but as the recession occurred, demand for oil weakened and prices began to fall.

The conflict also triggered an economic recession in the early 90s of the 20th century. Prior to this, oil prices had been rising slowly and unsteadily. In the months leading up to the recession, oil prices fell from a five-year high of $22 to $17. Then, two months before the war, oil rose again. In three months, oil prices more than doubled to a high of $39.51 a barrel, but this high was short-lived. After five months, the price drops to between $20 and $25.

Therefore, prices fall before the recession, rise in the early stages of the recession, and price corrections in the first year of the recession.

The ups and downs of the new century

The official website of exness Chinese believes that in the 21st century, we start with an economic recession unrelated to the conflict in the Middle East - the bursting of the dot-com bubble. Before the 2001 economic downturn, oil prices fell slightly, and oil prices briefly rebounded from $26 to $28 as the financial world accepted the fact that a recession was occurring. A month before the 9/11 tragedy that shook the world, oil prices plummeted and continued into November, eventually falling to a low of $19.

Before the recession, oil prices fell slightly, followed by a sharp decline.

By 2007, oil had rebounded. In April, a major subprime mortgage lender filed for bankruptcy. In June, two major hedge funds faced serious financial difficulties. These events were news at the time, but no one doubted them at the time.

In July 2007, the stock market hit a record high and oil continued to rise. The Fed then stepped in, injecting liquidity into the banking system and began a series of interest rate cuts later that year. Since then, everything has gone haphazard, but oil has continued to rise until June 2008.

Subsequently, oil prices plummeted, falling from a high of $140 to $41 in just six months. Anyone who still holds a long position in oil is sure to have a bad day. First a pre-recession rebound, then a very brutal reversal.

It is worth mentioning

Although 2014 was not an official recession, oil did plummet from $105 to $48 that year. This is because the United States has made advances in hydraulic fracturing and horizontal drilling techniques, which has significantly increased shale oil production. OPEC took a desperate gamble and did not cut production, resulting in a large oversupply.

A similar oversupply reappeared in 2019/2020 as global industries and markets entered standby mode to survive the COVID era.

epilogue

The Exness platform believes that before the recession, we have experienced a turbulent but bullish year again and again. In the months leading up to the official recession, oil experienced a noticeable brief decline, followed by a historic rebound. And many times, these rallies end abruptly, followed by a terrible crash.

In terms of timing of these events, when we look back, we can easily spot ideal entry and exit points, but when we zoom in on the daily chart, we see that large swings are likely to crush many trading accounts.

If you plan to trade oil ahead of the predicted recession in 2024, it's important to choose leverage carefully and take price fluctuations into account when setting your stop loss. As for taking profit settings, targeting too high can cost you a lot, so lower your profit expectations moderately.