I’ve had some questions regarding the outlook for oil lately. Today I will look at the longer termed then nearer termed potential of oil prices. First, lets look at some historic patterns of oil when supplies became constricted, as we are seeing today. Then, we’ll look at the neartermed picture from more of a technical analysis perspective. Is now the time to buy oil?
1970s Deja vu
Bloomberg notes: “Global oil markets are looking at a supply deficit of close to 3.5m bpd in Q4, the biggest shortfall since at least 2007.”
My comments: In the 1970’s, then in 2004-8, oil surged due to shortfalls:
Stocks – outside of the energy producers- went sideways and massively underperformed in those two periods.
You can’t trust the media, or Sell-side research. Yet another example
Before: “Bank of America slashes its oil-price outlook 9% for 2023 as debt ceiling crisis increases the risk of recession.” — May 2023
After: “Oil Could Breach $100 Before 2024 on Strong Asian Demand, OPEC+ Cuts”, Bank of America this week. “The return of Asian energy demand led by heavy Chinese transportation-sector consumption as well as ongoing production cuts by OPEC and its allies could lift crude futures above $100/bbl before 2024,…”
Near termed view
WTIC recently broke its resistance at $80. There is a fair bit of resistance at $90 that may inspire a pause (currently $88).
- Near termed indicators suggest its a bit overbought, adding to the resistance at $90.
- Longer termed indicators are looking very bullish – see MACD, comparative relative strength vs the SPX, and cumulative moneyflow.
Watch for a possible pullback as we get to $90. It may hit $90 or close to it, pull back and fix the overbought momentum. From there, it may then redouble its bullish efforts and break through that $90 lid. A neartermed pullback may represent a new buy point to add to positions.
Here’s the chart: