Oil prices are high. Why they don’t go much higher.

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WTI crude found a bottom just above $95.

Wenbin Yu/Dreamstime.com

Oil prices go up and down, like almost everything else. Now they are well below their peak of last month and they probably won’t reach that level anytime soon.

WTI crude is down about 25%, at just under $97 a barrel, from a multi-year high of $130 reached on March 8, the day the United States banned Russian oil imports and the UK has promised a phase-out. The price is still above the $89 level from February 10, just before Russia made it clear that it would invade Ukraine. The war began on February 24.

Sanctions, of course, limit the supply of a good, raising its price. But the drop in oil prices has come because other European allies are much more dependent on Russian oil and wondering how — or whether — to sanction the Kremlin. Additionally, the Biden administration is releasing one million barrels a day of oil reserves into the market to give drivers a break from the gas pump.

Oil’s fall from the top follows the pattern of how the price has behaved in the past.

At $130, oil was more than double its 24-month moving average of $57 on March 8. This $130 level was also above the upper fifth percentile of price relative to its 24-month moving average, according to data from Evercore.

When oil has skyrocketed in the past, it has also tended to fall rapidly. It’s been six times since 1975 that oil has traded at such high levels – and each time the price has fallen at breakneck speed after hitting the peak. At times, this drop caused the price to drop to its 24-month moving average.

“The cure for high prices being high prices” seems to be more than just theory, but reality, wrote Julian Emanuel, equity strategist at Evercore.

None of this, of course, means that oil won’t rise from here. But WTI crude has bottomed out just above $95 in recent weeks, indicating buyers are still stepping in for more gains. They expect a slightly higher price in a few weeks or even a few months. This keeps the price near its 50-day moving average of around $99, a short-term indicator of what oil has been doing recently.

As long as price remains high enough, “we should continue to price in a higher top,” wrote John Kolovos, chief technical strategist at Macro Risk Advisors.

So maybe oil and gas prices will stay high for a while. But consumers — and the stock market — may breathe a sigh of relief that oil isn’t likely to rise anytime soon like it has before.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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Felix J. Dixon