Crude Oil Bears Out in Force…For Now

The crude oil price has played out nicely.

For the past two months, we have been writing about it and (we might say) accurately predicting the next move. The latest was a pull back, which we warned about in our last update here.

We’re seeing the bears out in force now…

Surprisingly, one of them is Bob Dudley ― the BP Boss. Oil Price reported him saying on Monday,

‘Oil prices at $80 a barrel are too high and unhealthy for the world today.

‘“There’s a healthy price for oil and energy and I believe that balances producing countries and consuming countries…In my mind, it’s somewhere between $50 and $65 a barrel. The world can live with this.”

You don’t normally expect CEOs of major oil companies to sound the alarm bell. But, perhaps, he’s worried about the long-term side-effects of US$100 per barrel oil. The US shale oil market would be back in business at that price.

I believe there’s a chance we could see a sharp re-rate higher of the crude oil price over the coming months. It might not happen tomorrow. But, over the next year, crude oil could be a sector that surprises the market.

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I’ll explain…

The crude outlook

CNBC noted on Monday:

‘As President Donald Trump struggles to contain the fallout from the apparent murder of a Saudi columnist for the Washington Post, markets are turning their attention to what might happen if the U.S. punishes the Saudi government — and at a time when sanctions against Iran and its oil supply are scheduled to take effect in less than three weeks.

‘Investors breathed a sigh of relief Monday when Saudi Energy Minister Khalid A. Al-Falih said the kingdom does not wish to impose an oil embargo on the West.

‘The sanctions against Iran have already done much to boost the price of gasoline at the pump, as crude oil prices have risen $25 a barrel in the last year, to about $80 on international markets, driven by Trump’s threat to reimpose sanctions on Iran, which are now set to take effect Nov. 4.’

Let’s be frank: Saudi Arabia is a closed book with a dark past. The country is one of the world’s worst abusers of human rights ― if not the worst. It’s also known that out of the 19 hijackers in the 11 September 2001 terror attacks, 15 were citizens of Saudi Arabia. Yet, despite these facts, Western countries turn a blind eye to the country. That’s because of its long relationship with the US, and crude oil.

As long as the US turns a blind eye to Saudi Arabia, allowing it to do whatever it chooses, we’re unlikely to see sanctions on the country.

The Telegraph reported yesterday:

‘Jared Kushner, Donald Trump’s son-in-law, has revealed he urged Saudi Arabia’s crown prince Mohammed Bin Salman to be “fully transparent” about missing journalist Jamal Khashoggi as international pressure for answers continued to grow. 

‘Mr Kushner, 37, who has developed a close relationship with the 33-year-old Prince Mohammed, said he had warned him that the “world was watching” and that Mr Khashoggi’s disappearance was “very serious”. 

‘Mr Kushner, who is a White House adviser with a brief that includes the Middle East, had cultivated a close relationship with the Prince Mohammed and has reportedly stressed the importance of Saudi-US relations during White House discussions in recent days.’

Importantly, Kushner noted the US shouldn’t throw away its relationship with Saudi Arabia because of one murder. Now, as per my analysis above, it’s a strange statement to make. But, given his relationship with MbS, it’s not surprising.

It’s business as usual…unless something changes for the worst.

Who knows what happens next.

But, the crude oil prices still look good on the charts… 

A bullish set up for crude oil

Here’s the latest monthly chart for Brent crude oil ― the international oil price:

Brent crude oil prices

Source: tradingview.com

[Click to open in a new window]

We have warned that crude’s making an extremely bullish set up for weeks. Here’s a snippet of your latest update on the topic:

‘Crude oil closed above the upper blue trend line and the lower pink downtrend line last month. That’s why it exploded towards upper resistance, shown by the upper pink trend line.

‘The commodity is in a raging bull market.

‘That said, despite my ongoing positively, caution is suggested around these prices. Crude oil is trading around major resistance dating back to the 2011 high. It also hasn’t seen these prices since 2014. There’s a good chance that, given it’s trading around technical resistance, crude could pull back to the lower pink trend line at the US$78 per barrel level.

‘A pull back to this trend line would be a bullish set-up.’

Boom!

We got everything we wanted…

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Remember, switching from blue to pink channel, crude oil made a paradigm shift that favours the bulls. There’s a good chance it could surge towards the high US$80 per barrel zone this year. That target is shown by the upper red trend line. Interestingly, crude moved to retest this area earlier in this month. But we could see something more sustainable…or at least another run into the high $80s.

That said, as discussed a few weeks ago, prices never go up in a straight line forever. The latest correction was expected. Energy to the upside ran out and prices moved to the downside. Now, if you look closely at the numbers, crude appears to be re-testing the bottom pink support line.

Put simply, we’re looking at a nice trend shift in favour of the bulls. I suspect crude could bounce around these prices.

It’s trading near technical support.

The bottom line: Trade the trade. Crude looks bullish on the charts and remains the standout performer in the commodities sector this year. So, while we are seeing a pullback forewarned a fortnight ago, the party could be just getting started. Crude could take off to much higher prices in the months ahead.

Regards,

Jason Stevenson,
Resources Analyst, Markets & Money


Jason Stevenson is Markets & Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options. He originally studied accounting and finance at Curtin University, where he was awarded a first-class honours degree. His professional background stems across high-net-worth, top tier accounting (corporate finance, tax and auditing), and sell-side equities research. Before joining the team at Markets and Money, Jason worked at boutique firms which advised fund managers and high-net-worth clients on where to invest. Whether it’s gold, crude oil, copper or an obscure metal like vanadium, you can rely on an in-depth analysis in Markets and Money. Jason also brings you extensive macro, political and geopolitical analysis from around the world. He leaves no stone unturned when it comes to telling the truth. Jason is also the lead analyst of Gold Stock Trader, a premium service for investors serious about precious metal stocks. Websites and financial e-letters Jason writes for:


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