When oil prices recently fell to below $80.00, I said don’t sell.
The U.S. Energy Department increased its projections for crude oil prices for this year, adding that global oil consumption will rise to a record high in 2013. (Source: “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg, January 8, 2012.)
Take a look at the price chart for the December West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, we have seen oil prices slide, despite multiple attempts at rallying back to the $100.00 level. The spot WTI is trying to hold at its 50-day moving average (MA), currently above its 200-day MA of $85.08.
Yet the chart is displaying what looks like a bullish flag formation setting up, which means that higher oil prices could be coming, rising above $100.00 in the best-case scenario, based on my technical analysis. You need to be watchful of the $80.00 support level, which was breached on several occasions, but in each case, there was a rally after.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will rally as the global economy strengthens. If you extend the oil futures contract to 2021, the current prices range from $83.00 to $96.00, so I’m not that worried and don’t have the urge to go and sell.
Helping to add support will be the continued erosion in the major economies in the eurozone, along with its impact on the U.S. and China.
Also add in the geopolitical issues in the Middle East. Iran and North Korea are real threats … Read More
There has been some dumping of oil stocks out there, as the price of the December West Texas Intermediate (WTI) futures contract plummeted below $90.00 per barrel to the $85.00 level on Tuesday.
After trading at $115.00 in May 2011, we have seen oil prices slide despite multiple attempts at rallying back to the $100.00 level. With the downside move, oil is back in a technical bear market, down 22% from its contract high in March 2012 and below its 50-day moving average (MA) of $94.17 and 200-day MA of $96.88.
Yet the chart below is displaying what looks like a bullish flag formation setting up, which means higher oil prices could be coming to back over $100.00 in the best-case scenario, based on my technical analysis. You need to be watchful of the $80.00 support level, which was breached on several occasions but in each case, there was a rally after.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will rally as the global economy strengthens. If you extend the oil futures contract to 2020, the current prices range from $84.00 to $93.00; so I’m not that worried, and I don’t have the urge to go and sell.
Helping to add the support will be the continued erosion in the major economies in the eurozone, the U.S., and China. Geopolitical issues in the Middle East will also have an impact on oil prices.
I also expect oil prices to be supported by the oil cartel, the Organization of Petroleum Exporting Countries (OPEC). OPEC estimates oil prices in … Read More
Money is flowing out of China, according to the People’s Bank of China, which, in a report, indicated that banks in China were net sellers of 3.8 billion yuan, equal to US$597 million, in July. The significance of this is that the data suggest China’s exporters and investors may be exiting the yuan; whereas, Chinese banks have been net purchasers of yuan in the past years.
The news indicates China may face hurdles trying to pump up the economy, given that with the outflow of capital, the country will need to ramp up its government spending.
Yet, instead of following the capital flow and in spite of the fact the country is slowing, China remains a resource-hungry country that’s hunting the world for resources to help fuel its expected GDP growth in the decades ahead.
For this to happen, ample raw materials are needed.
In the oil patch, Chinese energy firms made about $48.0 billion in acquisitions in North America in 2009 and 2010, according to the International Energy Agency. China is investing in the oil-rich Canadian tar sands, and I expect to see more Chinese capital flowing in.
In July, CNOOC Limited (NYSE/CEO), one of the three major state-owned oil stocks in China, announced it would acquire Canada-based Nexen Inc. (NYSE/NXY) for $15.1 billion in cash or $27.50 per share, representing a whopping 60% above the close of July 20. I believe the deal may not be accepted by the Canadian regulators, who in the past axed deals from China when pressured by the country’s conservative government. In 2005, CNOOC attempted to buy U.S. oil play Unocal, but the … Read More
There is a growing movement to invest in green energy. The thinking behind this movement is that oil stocks are bad and green energy is good. That type of black-and-white thinking is silly, and it doesn’t appreciate that in life, everything is a shade of gray.
While many think that oil stocks are evil organizations generating as much corporate profits as possible along the way, I think there’s a big gap between reality and perception. Oil stocks are no different than any other business; their goal is to try to generate corporate profits for the shareholders.
If you’re a capitalist, you should be applauding the fact that oil stocks, like all businesses in the world, are trying to create generate corporate profits. I would say that oil stocks are simply doing on a larger scale what every business attempts to do: maximizing corporate profits. Without corporate profits, you have no company, hence, no jobs. We’ve seen what happens when a society is not run for profit through the collapse of every communist nation in the world, such as the former U.S.S.R. China has only succeeded because it’s now embraced the notion that to thrive in the world, businesses must generate corporate profits.
But the shocker for many is that some of the leaders in green energy development have been oil stocks, such as BP p.l.c. (NYSE/BP). Oil stocks have spent billions of dollars on green energy initiatives. BP, for one, has invested over $7.0 billion since 2005. While some might think this is just a PR stunt, I disagree. The truth is that oil stocks like BP see the potential … Read More