As daily market participants, our eyes and ears are glued to the delicate balance of supply and demand. But, every once in a while we take a peek into the behavior of said market participants. Behavioral economics studies the effect of psychological, social, cognitive, and emotional factors on the economic decisions of individuals and institutions and the consequences for market prices and returns. As academic Richard Thaler receives the 2017 Nobel Economics Prize today for his work on how human nature affects supposedly rational markets, I can’t help but think about the past few trading days within the energy sector and point directly at the field of behavioral economics as the main culprit. On Thursday WTI had rallied almost 3% on what everyone attributed to a storm, that wasn’t even in the Gulf Coast yet, disrupting the oil and gas industry. Then, on Friday, WTI had a pullback of almost 3.5% seemingly because of a storm, that hadn’t even passed through the Gulf Coast yet, may NOT wreak havoc on oil rigs and natural gas rigs as first anticipated. If this isn’t a clear case of lack of self-control and fear of losing what you already have prompting decisions that may not have the best outcome in the longer term, I don’t know what is. That being said, WTI for November delivery as of 12:30pm EST is up $0.31 at $49.60 a barrel whilst the refined products are mixed with HO down $0.0086 at $1.7353 and RBOB up $0.0018 at $1.5606.
As the above chart indicates, WTI has found a temporary support level at around $49.19 where the 50% Fibonacci Retracement level and the 50day exponential moving average have converged to hold for the time being. However, the $48.64 area with the 100day EMA, 200day EMA, and the 61.8% retracement level from September 28th’s high is a much more indicative support level if we can get there. Holding above this level this week should signal upward continuation into the $53.87 region. With the storm having whisked through the Gulf Coast and into the upper mainland of the U.S. already, it appears calmer heads have prevailed and the energy sector moseys on and awaits the next supply and demand market indicator. Asked how he would spend his prize money, Thaler said: “I will spend it as irrationally as possible.” For now, we must keep our rational thoughts and, once again, wait and see.