Summer is slowly but steadily nearing its end. It was a great opportunity for me to take a break and do some stuff I didn’t have time for during the year. I was still watching the markets, but trading much less frequently than usually. One has to keep in mind that the markets will always be here and so will the opportunities. When I was less experienced I thought that if I miss an opportunity it’s over, I will miss the train to the riches… so perhaps like the most of us I had the fear of missing out. Once you really understand that, sure we swing for the big win, the market keeps throwing opportunities at you, you get much more relaxed.
But what I wanted to say is that when you do that, when you step back a bit, you might get a fresh look or a new perspective on things. You open up to the new ideas. And this is the big win. Everyone needs to do it now and then.
Anyway, let me get to oil now. Since last summer I had been constructive on oil and energy prices in general. I still maintain the same view. The fundamentals haven’t changed much, oil inventories keep on decreasing, demand keeps being strong and if you’ve been paying any attention to OPEC you know that there is a cap to supply. We can argue for how much longer they might stick to this, but until something changes we shouldn’t try be cute and try to forecast (the time of) a change.
Let me first show you a weekly chart of Brent’s rolling front month contract. We see that the price has been stuck in a range between $71 and $79 for the past 5 months after it had rallied strongly since last summer. Not only that, $80 level has historically been very important for Brent. I believe that it is quite likely the price will resolve higher and if it does, if it closes above $80, then there is quite a good chance for the price to hit $100 in next 12 months.
Now, let me also show you a weekly chart of WTI. It’s not as clean as Brent’s and it’s also under performing it, but it follows a very similar path.
Should the price get above $75 then this would confirm my thesis. In this case I think Brent will already have broken the $80 resistance and WTI’s move will just confirm it.
Should they remain below these two key levels, then I think we have to look for opportunities somewhere else and in the case of prices being below $70 and $65 respectively, then we have to consider the bullish narrative is ending for some time.