Why Crude Oil’s Future Looks Uncertain…

Here’s the latest from the Oil Price:

‘As the oil market continues to tighten significantly, Brent Crude oil prices could reach $70 to $75 a barrel in the near term, with an upside potential of exceeding the $67.50 a barrel forecast, according to Goldman Sachs.

‘The outlook for the oil market through the end of June 2019 is modestly bullish, Reuters quoted the investment bank as saying in a research note on Monday.

‘Yet, Goldman Sachs sees a possible Brent Crude jump into the $70s as fleeting, because U.S. oil exports and a possible easing of OPEC’s production cuts in the second half of the year could cap the bullish sentiment.’

The investment banks are turning bullish on oil.

That’s nice.

But they might be a little late.

Or, wrong.

I’ll explain…

The big picture story

There’s still no indication that crude will take off yet. It’s trading around an important level today, which we have warned about for weeks. More on this below. Nonetheless, regardless of what happens next, crude oil certainly looks stronger today. That’s turning the investment banks to the bullish side.

Oil Price wrote yesterday:

‘“The oil market will likely continue to tighten significantly this March and April,” Bloomberg quoted Goldman’s note as saying.

‘OPEC’s cuts and possible acceleration of Venezuela’s supply disruptions will support oil prices in the coming months, according to the bank.

‘“While prices could easily trade in a $70-$75 a barrel trading range, we believe such an environment would likely prove fleeting,” said Goldman’s analysts, who kept their end-of-the-year Brent Crude forecast at $60 a barrel.’

Look, despite my concerns in the near-term, Goldman Sachs could be right ― crude oil might burst into the US$70 per barrel range. But I don’t think it will happen, unless there’s a US–China trade deal. The global economy pretty much hinges on a trade deal between the world’s two largest economies. A deal would create more business certainty and that should drive the crude oil price higher.

Trade deals aside, the technicals are driving the show right now.

Digging deeper

I wrote the following in Markets & Money last week:

‘At the end of the day, crude oil must hold US$64 per barrel on a monthly basis. If that happens, we could see a gigantic bounce in the months ahead. There’s some resistance around current prices, with major resistance at US$70 level (not shown on chart). I’d love to see a weekly closing above this level.

‘I’m not getting to excited yet, however…

‘Remember, US-China trade talks are driving crude oil story for now. A trade deal should send crude prices skyrocketing; where a no-deal should push crude prices lower. In that case, despite the story favouring the bulls today, a daily closing below US$57 would be bearish and something to keep in mind.’

The above targets remain, which is why the oil bulls are winning the battle today. Crude prices held above US$64 per barrel last week. With that in mind, take a look at latest daily chart for Brent crude oil ― the international oil price:

Source: tradingview.com

Crude oil broke through the pink uptrend channel a fortnight ago. That’s bullish. But we’re not sold yet. There’s a chance this could become a false move, if crude can’t hold these levels.

Focus on the blue uptrend channel dating back to the 2016 low. Crude oil broke outside of the channel a few times last year. In fact, given the momentum and technical picture at the time, we thought it would explode higher. But it didn’t happen. Crude prices nose-dived into late December instead, cracking the blue uptrend channel on a closing basis.

That’s a bearish move.

That said, as explained above, the bears have lost control of the fight…

The oil price has surged above the pink resistance line, closing above US$64 per barrel. I’d like to see another monthly closing above this price in February. That said, who knows what happens next. Crude might be seeing a ‘bearish re-test’ of the lower blue trend line, for example. That would be a normal technical analysis bearish move, mind you.

It’s still too early to know who will win the war.

The bottom line: I don’t think we will get a clear buy or sell signal, until we get a clearer picture on the US–China trade talks. Until that happens, pay close attention to the numbers. Crude oil must hold the US$64 per barrel level for now.


Jason Stevenson,
Resources Analyst, Markets & Money

We believe Markets & Money is unlike any other finance newsletter. Our mission is to look at the world of investments and finance in a sceptical and contrarian way. Our editorial team looks beyond the headlines and obvious explanations to bring you what we think is really moving the market. More importantly, we’re trying to show you where the next big opportunities and  big risks could be that you might not be aware of. In Markets & Money, you’ll read about the state of the Australian housing market, the future of the commodity boom, China’s rise to an economic superpower, the fate of the US dollar, and of course, a whole lot more.

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