Crude oil is one of the most traded commodities in the world.
It can make punters incredibly rich…
Or, very poor.
Of course, we’re in the business of trying to help you make money! That’s why we want to keep you on the right side of the trade. So, unless something urgent needs addressing, I’ll talk about crude each week for the rest of the year.
Some people think it will march to higher prices.
Others say it’s overpriced…
No one knows for sure. But I’m in the bull camp. Still, regardless of my view, the sector remains broadly ‘hated’ by the market. That offers an overlooked opportunity in my mind.
Global uncertainty is key for crude oil
CNBC reported on 18 September:
‘Oil markets fell on Tuesday as the latest escalation in the Sino-U.S. trade war clouded the outlook for crude demand from the two countries, which are the world’s top two oil consumers.
‘U.S. President Donald Trump on Monday said he would impose 10 percent tariffs on about $200 billion worth of Chinese imports.
‘“The growing trade dispute has hurt trading sentiment. The impact on economic growth is slowly dripping in, which again hurts oil prices,” Wang Xiao, head of crude research at Guotai Junan Futures, said on Tuesday.
‘Refineries in the United States consumed about 17.7 million barrels per day (bpd) of crude oil last week while China’s refiners used about 11.8 million bpd in August, according to government data from the countries, the most among the world’s countries.
‘The tariffs are likely to limit economic activity in both the China and the United States and that should lower oil demand growth as less fuel is consumed to move goods for trade.’
The two countries are the world’s largest economies. They matter for crude oil. Without it, the world economy would likely come to a halt. Crude oil is one of the most used commodities on the planet.
A trade war is good for no one…
That said, while a trade war makes exports less attractive, it’s narrow-minded to think a trade war is the key driving force behind crude oil.
There’s far more to the story…
Remember, while we’re seeing a trade war between the US and China, it could unwind at any time. Plus, the relationship between the US and Iran is far worse. Iran is one of the most influential oil producers in the Middle East. It’s also the third-largest producer from OPEC ― the Organization of the Petroleum Exporting Countries.
The US has imposed numerous sanctions on Iran, which have propped up oil prices this year. These sanctions come into full effect from 4 November. According to Bank of America Merrill Lynch analysts, Iranian crude oil exports have dropped by 580,000 barrels per day in the past three months.
Mind you, I don’t see that as a massive deal…
Remember, given its own dispute with the US, China couldn’t care less about the sanctions. It has committed to buying more crude oil from Iran with yuan. That bypasses the international sanctions and the US monetary system. Iran is likely to be fine in the medium to long term, thanks to China’s ongoing support.
But, given the political tensions and ongoing uncertainty, crude oil prices could stay higher for longer.
OPEC and non-OPEC members are due to meet later this month in Algeria. On Monday, Russia’s Energy Minister, Alexander Novak, said that members will discuss all possible supply scenarios. There’s currently a supply agreement to maintain prices, while at the same time providing enough oil to the market.
Will the deal get extended and, if so, what does this mean for crude oil prices?
But, technically speaking, the story looks good in the short term…
The big picture for brent crude oil
Here’s the latest monthly chart for Brent crude oil ― the international oil price:
The chart shows that crude remains in a bullish posture today. It’s trading around major resistance dating back to 2011. That’s when crude made its highest yearly closing. You can see this by looking at the lower pink trend line, which acted as minor resistance into 2014.
The upper pink trend line is a parallel of the lower pink trend line. A monthly closing above this line would suggest new highs into 2019/20.
There’s a good chance this could happen.
But there’s lots of work ahead…
We can see crude has crawled along this resistance for the past few months. It needs a special piece of news to boost it higher. There’s no guarantee this will happen. But, considering the global uncertainty, anything is possible.
Crude is pushing against the upper blue uptrend line. That has acted as resistance since the 2016 low.
I’d suspect another ‘break through’ challenge of this line soon.
The red channel suggests crude could see a channel shift in the future. It’s currently trading in the blue channel. But it couldn’t breakout during May. It came back to re-test the channel.
That could change soon…
The bottom line: Brent crude looks like its setting up for a drive to higher prices. I wouldn’t be shocked if crude moves into the $80 per barrel zone next month. Indeed, if we’re correct, you could potentially make a fortune buying the best crude stocks.
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