Here Comes Oil’s ‘Big Bounce’

We hope you’re buying the oilers.

Crude oil could bounce significantly higher soon. We call it the ‘big bounce’. That said, if you read the news on a daily basis, you probably wouldn’t know it…

The mainstream media are mostly bearish on crude.

That’s no shock.

The price has been falling.

It’s time to buy oil― not sell

Here’s the latest from Oil Price (my emphasis added):

In what must seem like a nightmare scenario for Iran, not only is another U.S. president leveling sanctions against its economy, and particularly that economy’s lifeblood, its oil sector, but the current U.S. president has admittedly made it his mission to drive Tehran to its knees over what he sees as non-compliance over the 2015 nuclear accord between western powers and Tehran.

Some predicted that $100 per barrel oil by the end of the year was imminent, while Tehran maintained a defiant tone, stating that neither Saudi Arabia nor OPEC would be able to pump enough oil to compensate for the loss of Iranian barrels, estimated between 500,000 bpd and 1 million bpd.

Now, what a different just a few weeks can make. Oil prices are now trending downward, falling for a third consecutive week as global stock markets tumbled and oil markets focused on a weaker demand outlook for crude going forward.’

Wait.

Hold up.

Weak demand outlook?

Last week, the International Energy Agency said global supply jumped to 100.3 million barrels a day in the third quarter. Output, which includes crude oil, natural gas and other liquids, was up 2.3 million barrels over this time last year:

Production of Oil barrels

Source: Bloomberg

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Supply is booming for petroleum products, while prices have marched higher. The world is soaking up this crude, mind you. For example, despite worries that its economy is slowing, China’s crude demand are near an all-time high.

‘China’s still scrambling to buy oil, and any dip in crude prices,’ will encourage Chinese buyers, Phillip Streible, senior market strategist at RJO Futures in Chicago, told Kitco News on 8 October. ‘Some people have been bargain hunting after three big days down.’

Tim Ghriskey, chief investment strategist at Inverness Counsel, told Oil Price:

‘We’ve seen oil prices sell off here throughout the correction we’ve had in the broad market. The concern in the sell-off is clearly global growth, and that’s immediately reflected in oil prices.’

We disagree. 

The US stock market isn’t falling because of weak global growth. It’s clearly pulling back into US mid-term elections on 6 November. There’s a risk the democrats could win the house, which could disrupt the positive economic progress made by the Trump Administration. If the democrats take power, Donald Trump may accomplish little for the rest of his term.

The stock market doesn’t like uncertainty.

It’s selling off because it’s worried about the future.

The oil price nose-dived with the stock market for that reason.

It was a much-needed correction, mind you. And one which we predicted weeks ago. That said, technically speaking, nothing has changed with our overall bullish view.

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Why we’re bullish on oil prices

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

Price of oil internationally

Source: tradingview.com

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For weeks, we have warned that crude’s making an extremely bullish set up. But our message wasn’t without warning. Here’s a snippet from your latest update on the topic:

‘…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.’ 

Despite the sharp pullback this month, crude has reacted mostly as expected. In your last update, we thought crude would bounce off the lower pink trend line.

It didn’t.

It went a tad lower…

Brent moved towards the lower red trend line, before bouncing to the lower pink trend line. That’s where it’s sitting today.

We’re still bullish…

Nothing has changed outside a small correction.

Remember, switching from blue into the pink channel, crude oil looks like it’s making a paradigm shift that favours the bulls. There’s a good chance it could surge towards US$90 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.

This move won’t happen overnight, mind you.

We need to see a monthly closing above US$80 per barrel in November. If that happens, we could see crude move higher into year’s end.

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 as warned may times, the party could be just getting started. Crude could take off to much higher prices in the months ahead. I believe this is the time to buy crude oil stocks, while we’re seeing the price dip.

Regards,

Jason Stevenson,
Resources Analyst, Markets & Money

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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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