What a difference a week makes!
Brent crude oil was trading for less than $80 per barrel a few weeks ago. We warned a breakout was on the cards multiple times, mind you. Brent was setting up for a big move higher.
It was close to breaking out last week.
It was at a tipping point…
Well, times have certainly changed.
Brent crude oil tapped $85 per barrel yesterday.
What’s next for crude oil?
CNBC shared the latest story on Monday:
‘U.S. crude prices surged on Monday, hitting a nearly four-year high on signs that sanctions are shrinking Iranian crude exports and as North American trade tensions ease.
‘Oil prices rose after the United States, Canada and Mexico announced they had agreed on a path forward for the North American Free Trade Agreement, or NAFTA. A trade dispute among the three trading partners has raised fears of a slowdown in growth that could impact oil demand.
‘”The stock market is loving it. It unleashes some more economic activity. It should enable Mexico to buy some crude oil off of us,” said John Kilduff, founding partner at energy hedge fund Again Capital.
‘The market was also bouncing on news that China’s Sinopec has cut crude imports from Iran in half ahead of the Trump administration’s Nov. 4 deadline for oil buyers to stop importing Iranian supplies.’
Indeed, while there’s a major debt crisis building in the background, global economic growth is booming.
There seems little risk of it slowing down soon.
That’s good news for crude oil.
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China’s new attitude has also pushed crude prices higher.
A few weeks ago, the world’s second largest crude consumer said it would keep buying oil from Iran. Whether this happens or not remains a speculation. But, the latest news is positive for crude.
It reduces supply hitting the market.
US sanctions on Iran ― OPEC’s third biggest oil producer ― could wipe one million barrels per day from the market by year’s end.
CNBC reported on John Driscoll, chief strategist at JTD Energy Securities, on Monday:
‘$100 a barrel oil now looks possible, if not inevitable. He noted that benchmark Oman oil on the Dubai Mercantile Exchange — which reflects the cost of sending Saudi crude to Asia — recently spiked above $90 a barrel.
‘”It almost signaled a psychological panic-type buying,” he told CNBC. “We’re moving into a world where you have lower inventories, lower spare capacity, less protection for buyers, and this kind of sent a shot across the bow.”’
Look, while there’s a good chance, let’s not get ahead of ourselves. Crude might, or might not, hit $100 per barrel. But regardless of what happens next, the technicals are shaping up for a big run…
The current landscape for crude oil
Here’s the latest monthly chart for Brent crude oil ― the international oil price:
I have warned that crude looks bullish for weeks. Here’s a snippet of last week’s update:
‘…technically speaking, crude oil could march off to higher prices. I’d love to see a monthly closing above the blue uptrend line and the lower pink downtrend line. This hasn’t happened since 2014.
‘A closing at 2018 highs this month would be tremendously bullish for crude oil. It would suggest an advance to higher prices into years end…
‘The bottom line: Everything we’re looking at is bullish. It’s difficult to be bearish with this price action. Crude oil is a standout in the commodities sector today. It’s not too late to buy the best crude oil stocks.’
We got everything we wanted…
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.
Remember, switching from blue to pink channel, crude oil just made a paradigm shift that favours the bulls. There’s a good chance crude could surge towards the high US$80 per barrel zone this year. That target is shown by the upper red trend line. But, it probably won’t happen overnight.
Prices never go up in a straight line forever.
Energy eventually runs out and prices move to the downside.
That’s not meant to sound bearish, mind you.
We’re just being realistic.
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 might see a pullback, it’s not too late to buy the best crude oil stocks. If we’re correct, the party is just getting started. Crude could take off to much higher prices in the months ahead.
Resources Analyst, Markets & Money
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