Crude Oil vs Platinum :: InvestMacro


by Ino.com

Market distortions appear from time to time in different instruments and sometimes provide opportunities. I’ve discovered a type unique to you in the chart below.


Source: TradingView

There is a quarter-century of astonishing correlation between crude oil futures (gray, scale A) and platinum futures (green, scale B) in the above chart. The simultaneous recovery and peak of 2008 with the next massive collapse in the same valley in the same year are the bright spots of that strong synchronization.

These two instruments traded the leading role as oil sometimes showed the way to platinum and vice versa. The strong recovery from the last financial crisis in 2009, as well as the strong recovery in 2020 were led by platinum futures contracts.

The long-term depreciation period from 2011 to 2020 has many false correlations and oil price excesses. In 2020, the two instruments were in sync again as the price of platinum surged strongly to levels not seen since 2014 and crude oil was catching up.

Something went wrong last year as the price of the metal was unable to advance higher after hitting a 6-year high of $1,348 in February 2021. Despite this, the correlation remained strong for some time.

The price of oil temporarily halted its rise, making a sharp zigzag in the peak platinum price region as if “inviting” the metal to continue side by side higher, but to no avail. This is when the difference started to grow and reached the final gap this year.

What’s Next? The possibilities that come to my mind are a significant drop in the price of oil down to the $50 area to match the current platinum level, a strong rebound in the metal price to around $1600 to catch up with the price of oil, or the third path as a compromise, both instruments equally close the gap to converge between About $75 for crude oil futures and $1,200 for platinum futures.

Each news feed tells us why Oil is rising daily. What about platinum depreciation? Let’s check out its basics.

Platinum supply and demand

Source: Metals Focus, World Platinum Investment Council

In the first quarter of this year, the platinum market experienced an oversupply of 167,000 ounces. Both parts of the equilibrium are in decline, but demand has fallen sharply.

Platinum Dial

Source: Metals Focus, World Platinum Investment Council

Three of the four major components of platinum demand decreased, especially industrial and investment components. The demand for cars remains stable. Total demand fell 26% (-541K ounces) year-over-year, which is huge and doesn’t support the metal’s rally.

Let’s check the platinum futures price chart.

Platinum futures monthly

Source: TradingView

Platinum futures price is moving lower in the second red leg within a big pullback to retest the broken resistance.

The retracement was already deep enough that it fell below the 61.8% Fibonacci retracement level. The next support level is at $730 (78.6% Fib). The touch point for a retest is below $670. Though, the market price has more room for further weakness.

The price should not fall below the invalidation level of $562 where the current growth point is. The first ascending barrier is very far now at $1,348 (the 2021 peak).

This is April I called the price of oil to skyrocket to $176. These days, it’s not a bold prediction anymore as “global oil prices could reach $380 a barrel” if US and European sanctions push Russia to implement retaliatory cuts in crude oil production. JPMorgan Chase & Co., analysts warned.

Below is the updated chart of oil futures contracts.

oil futures chart

Source: TradingView

The price of oil has risen by about $30 since April, but the previous high of $130 was untouched. There is a retest of the blue uptrend channel support now and the situation could change anytime soon.

A bounce to the upside could fuel the price to retest all-time highs at at least $147. On the other hand, a breakdown could send the price into a deep dip to the broken orange resistance around $50.

The latter is the price area where crude oil will close the gap to catch up with platinum according to the first chart above. It is an amazing coincidence of different schemes.

Rising energy prices are the main driver of the current persistent inflation. Platinum is an industrial precious metal and its depreciation reflects lower demand affected by the bleak outlook for the economy and Fed tightening. This combination can lead to stagflation (stagflation + stagflation) in the economy.

Smart Deals!

Ipek Burabayev
Contributor to INO.com

Disclosure: This shareholder has no positions in any of the stocks mentioned in this article. This article is the opinion of the contributor himself. The above is a matter of opinion and is provided for general information purposes only and is not intended to be investment advice. This contributor does not receive compensation (other than INO.com) for their opinion.

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source: Market Distortion: Crude Oil vs. Platinum


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