Oil prices had a 'fake-out breakout' to the downside: Strategist

BullsEyeOption.com Chief Market Strategist Alan Knuckman joins Yahoo Finance Live to discuss energy markets and how Europe's energy crisis could impact both the U.S. and China.

Video Transcript

DAVE BRIGGS: All right, oil prices at a seven-month low, currently trading. Right now, WTI up 3 and 1/2%, 86.47, that against the backdrop of Vladimir Putin fully weaponizing Russian energy. Let's take a deep dive into the current state of the energy market with Alan Knuckman, Bullseyeoption.com chief market strategist. Allen, good to see you. So again, that eight-month low, a nice pop today. Where are prices headed a month from now?

ALAN KNUCKMAN: Well, you've always got to remember that oil has got price potential. So the risk-reward is always skewed to the upside. Now, technically, we saw a breakdown, like you said, some new lows. But it looks like a fake out breakout to the downside. And now we've come back inside that channel. We've been between 85 and 95 for the last two months.

And actually, in the last two weeks, we went from 85, up to 95, then back down to 85 again. So we've seen a lot of sideways action, but with some intermediary volatility. In the big picture, we've been stuck between 91.10 mostly in crude oil for the last six to eight months.

RACHELLE AKUFFO: And Alan, a lot of people wondering what's happening with the energy crisis in Europe and how that might affect what we see in terms of the US markets. What are you keeping an eye on?

ALAN KNUCKMAN: Well, oil is a global product, obviously. Brent over there trades at-- I don't know-- $7, $8, $9 difference to the US price. But you look at the price patterns. They're almost exactly the same. So there's a lot of political action. There's a lot of supply-demand issues that, obviously, impact the price, but you get to see very much here in the price of crude oil that we've got knocked down exactly as intended by the Fed. That's exactly what they wanted.

So they got a 25% drop because of the interest rate hikes, obviously. But the big but here is that the dollar power could be coming to an end. The dollar may new highs this week, and it looks like it's going to have a lower close. So that's a very powerful, positive sign for commodities and crude in general. So let's see what happens.

If you look at the dollar, we're pricing interest rate hikes where we're gonna top out at about 4% middle of next year. But then rates will actually go down in 2024 or 2025. So how much more power does the dollar have if the dollar stops going up? That's very, very helpful for crude oil.

SEANA SMITH: Certainly is, and we've seen the strong dollar, what that has done to crude. Alan, I'm curious to get your take on this, just in terms of the biggest driver of crude right now. Is it the strong dollar tied to the Fed action, or is it really the demand side of things? Because we certainly have seen demand overseas begin to cool. We've seen that reflected in the price of crude here as well.

ALAN KNUCKMAN: Yeah, demand comes and goes. But as a trader and a macro market analyst here, people were worried that crude prices were too high, and that's going to hurt the markets, and that was going to hurt people. Now people will worry crude prices are too low. You can't have it both ways. I'm looking to see crude stabilize here around the $100 level. That's essentially what I think the Fed is looking for.

And let's remember, from 2011 to 2015, that's where crude oil was. And the stock market moved up about 50%. So I see a lot of positives. And for me, even though no one likes to pay higher prices at the pump, for me, a higher crude oil price is typically a sign-- a macro market sign of bullishness.

DAVE BRIGGS: I want to get your take on price caps on Russian oil, the G7 searching for allies in that regard. How successful ultimately can that be?

ALAN KNUCKMAN: Well, I wasn't trading in the '70s when they had price caps and levels that controlled things. So it didn't work then. I don't imagine it's going to work now. But more importantly is, all of these issues get sorted out by the price in the market. And the market right now is viewing all this near-term action here as a positive.

And like I said, it was really important that we tested the downside of that range and failed. It's not sometimes what happens in the markets. It's how the markets react after. So you want to see not only the action, but more importantly, the reaction was a failure to go down when it looked like crude oil was going to push down below that 85 level and stay there.

SEANA SMITH: All right, Alan Knuckman, great to have you, Bullseyeoption.com chief market strategist.