Oil Futures Get Comfortable Above $39
by Dr. Joe Duarte
|Thursday, July 08, 2004
Crude oil futures took a breather on 7-7, but still ended above $39. Overnight, electronic prices were above the $39 mark, and had gained most of their slippage from the day before.
From a technical standpoint, the oil stocks, see below, have correctly predicted that the recent decline in crude would be temporary.
From a fundamental standpoint, the fear of supply disruptions, from the Middle East conflict, and now the Yukos saga's latest developments in Russia, have traders worrying and steadily rebuilding positions.
On July 2, we wrote that "the September contract for crude oil moved back above $38, and crossed above its 50 day moving average. One day above the key moving average does not signal a complete trend reversal, but it is a significant development, if it is not quickly reversed, as it would signal that an end to the recent correction in prices has ended."
In fact, we noted then that "sentiment is certainly shifting among traders. According to Bloomberg: ["New York crude-oil futures may fall next week as surging imports from the Organization of Petroleum Exporting Countries boost U.S. inventories, according to a Bloomberg survey of traders and analysts. Twenty-one of 47 respondents in the survey, or 45 percent, predicted that oil futures will drop. Fourteen said prices will rise and 12 expected little change."]
Our conclusion was that "The survey, when looked upon from a contrarian standpoint, suggests that the market is vulnerable to surprises, and that oil prices may indeed by ready to rise once again."
At this point, our assessment has not changed.
The Philadelphia Oil Service Index (OSX) continued to show relative strength on 7-8, and still looks ready to make a run at the 110 area, a long term resistance point . A break out above 110 would be extremely significant for the long term trend of the energy stocks. A break below 96.35, its 200 day moving average, could send it plummeting to the 88 area in a hurry. 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) moved slightly higher on 7-7, with 610-627 being key support. A close above 647 would mark another all time high here. This is still a crucial juncture for the entire oil sector, as a continued failure in the near term could lead to a major top forming. A close below 600 would be a very negative technical development. 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.
Exxon Mobil (NYSE:XOM) is signaling that oil prices are going higher, or at least are not going to fall.
If XOM breaks out, it would likely set up a feeding frenzy in the big stocks that make up the Amex Oil Index (XOI), which has made several all time highs of late.
Conclusion: Money looks to be heading out of technology and airline stocks, and finding a home in the oil patch.
In the Rigzone Store:
Successful Energy Sector Investing: Every Investor's Complete Guide
Dr. Duarte's book predicted many of the current developments in the economy and the energy markets, and provides an excellent set of benchmarks and trading lessons for what could be in store for the future.