Energy Stocks Forecasting Higher Oil Prices
by Dr. Joe Duarte
|Friday, February 04, 2005
If the action in the oil and oil service stocks is correct, we could be gearing up for another round of higher crude oil prices, and much of the current action seems to be influenced by what experts testifying in front of Congress calls "a new oil game."
After a few days of drifting, crude futures were rallying modestly in pre U.S. trading on 2-4.
According to the Wall Street Journal, and confirming a notion that we have been putting forth here for some time, the activity of China and other countries in global oil markets, is now beginning to put consistent pressure on global oil supplies. "Increasing involvement by China and other nations in international oil deals could keep prices high for the foreseeable future, and require more involvement by the U.S. and other governments to secure energy supplies, a panel of energy experts told the Senate Energy Committee. Jeffrey Logan, an analyst for the International Energy Agency, said China's rapidly expanding demands for oil are being driven, in part, by plans to fill its version of the U.S.'s Strategic Petroleum Reserve and by its need to burn oil to generate electricity."
The experts, again confirming notions reported on in this space for some time added: "China's secrecy about its contract incentives, investment amounts and production sharing ["may create a more successful image of Chinese companies than is actually the case."] Frank A. Verrastro, an energy analyst for the Washington-based Center for Strategic and International Studies, said oil purchases by national companies led by China and India are creating a ["new game for oil."] He said hidden bilateral deals, including foreign aid to oil-selling countries, ["add a worrisome element"] to markets.
The divergence in the energy markets, may be ready to resolve itself, with crude rallying. Oil, and oil service stocks are in rally mode, while crude oil futures are flat. This is usually a sign that the futures will catch up, but is not a guarantee of it happening. If the current scenario stays in play, we could see sideways action on the futures continuing while the stocks move higher, as traders factor in a continuation of big earnings based on higher prices that are likely to stabilize at these levels.
Supply data showed a market that by some analyst's description is "well supplied." But, upward pressure on prices remains, given the above scenario.
Crude oil futures remained in a trading range with the 50 day moving average at 45.62 offering support and the $49.66-$50.27 price band offering key resistance. Long term support remains at the $40-$42 area, and the 200 day moving average.
The Philadelphia Oil Service Index (OSX) maintained its chart break out. Volatility will likely increase here in the next few days. For more details on trading the energy sector visit our energy timing page, featuring our highly effective OIH timing model and our Top Ten Energy Stock List.
The Amex Oil Index (XOI) added to its break out as well. XOI remained above the 50 day moving average, suggesting that prices are getting ready to attempt a move up. For immediate analysis, including stock picks, and the latest in technical analysis of the entire energy complex, our subscriber section has a full complement of recommendations in oil service and the rest of the energy complex.
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