Outlook for Oil

September 6, 2021No Comments

We’re at the cottage today. It’s you can see in the background that I’ve got a fire going, and I’m recording this on September the second. We’re just coming into the long weekend. Interestingly, I guess the weather front down in the Southern states is affecting us up here in central to Northern Canada because here in central Ontario, it’s something like a high of 15 degrees Celsius today, which is pretty darn cold. And actually, it’s around 10 degrees right now. Hence the fire. So let’s call this a fireside chat. We’re going to look at oil today, which is something else that we can burn and keep us warm. My cottage does not have an oil furnace or anything

so I can’t utilize that. Doesn’t even have natural gas. We use good old fireplace fire, a wood stove, and all that stuff because we’re not here in the winter. So what I wanted to do was take a look at the WTIC crude oil chart because oil is starting to react to this storm. We’re starting to see the oil stocks and oil prices move up again after having sold off a bit over the past quarter or so, and now it’s catching up a bit. The question right now is, is there much upside left on oil? And my answer is I think there is, and I put my money where my mouth is because I’ve bought a little bit of oil recently. So we’ll go into that. Let’s start off with the oil chart.

This is the WTIC crude oil chart, crude tech plus Texas oil. And you can see it fell off a bit and it was near its longer-term resistance in the mid-seventies, mid low seventies. I think it could easily get back there, but what excites me about oil over the longer run is that I think, oil, which is right here right now. If it can break that low $70 point of resistance can easily get back into the 80 to a hundred dollar point. In my original projection, you might remember, I called for oil to hit $70. Now I’m thinking that there’s a decent chance for it to go through. And if does go through $70, we could be looking at anywhere between 80 to a hundred dollars. So it’s to be seen, but there is a growing potential for that possibility.

xeg

So I’d like to look at a couple of other charts that might be of interest to people that share my enthusiasm for the energy trade. And so this is another country besides Canada that has a real interest in oil, and that is Australia. So this is the Australian ETF, and I will disclose that at ValueTrend, we hold a position in this ETF and we have for a while. We have ridden it really since last year. So you can see we’ve had a decent return on it, but it’s consolidating now. My thoughts are that of course, Australia is going through its own issues with all the lockdowns and the new variant of COVID. But there’s some good news coming out on that new variant and that is that at least here in North America, down in the Southern states, which is where it’s been very heightened,

the data coming out is that they’re actually on the downslope of the curve. I buy some fairly sophisticated data from various sources and it includes the data on COVID. Why? Because that does affect the investment climate these days. So the institutional research that I get has been charting COVID cases. And they’re saying that it’s actually just beginning to show peaking signs in some of the Southern states. So this would probably apply to most other places in the world, including Australia. So my thoughts are that if oil breaks out and Australia manages to deal with their COVID and lockdowns and whatnot, we’ll probably see a breakout on their index. So we’re not selling despite the fact that we’ve had a run-up on it, and it’s been going sideways for a bit because we actually think there’s some upside left on the Australian market.

So I wanted to, I’ll bring you to one other chart before we hit that chart. And that is the Ishares Energy Producers ETF. Now it trades it’s XEG here in Canada, and you can see that it has been pulling back a bit. I think in the near term, it could easily bounce back into the nine to nine and a quarter it’s around eight and a quarter right now. So that’s maybe 10% upside, not bad, but if it breaks that that would be this lid here it could go quite a bit higher and that could be as high as the 11 or $12 area. So that’s to be seen. And I don’t think it’s just the storm. That is the factor. I think a lot of the other factors is the new variant of COVID.

And if the statistics I was looking at do imply that the new COVID variant will be less of an issue in the months to come, that could spell upside for oil as transportation and travel and whatnot increase again. So again, another case for the possibility of oil moving. Now, not all oil companies are the same. And so I want to actually take a look, I’m going to pull up a chart of Suncor. Now I will disclose that we literally have traded this twice recently and we’ve just reentered the trades. So we do hold a position, a very new position in Suncor. We think it’s way too oversold. We do think that it could get easily back into this $28 space. Possibly higher. It’s currently 24. So that gives us possibly as high as a 20% return in a swing trade.

I don’t show it here, but were we to look at some of the technical factors like momentum and whatnot. Well, I can show it easy enough, I guess. You will see some of the momentum indicators are indicating there’s stochastics a hook up from an oversold position. RSI is looking up from an oversold position. MacD is still declining. That’s a slower move, but if you look at the histogram, it is hooked up. So for those of you who are a little bit more technically savvy, you may be encouraged by that movement. The other thing to keep in mind is that we’re going through a Canadian election and there’s absolutely no way to predict who will win. But probably one of the reasons behind the weakness in Suncor, as well as a few others in its category, like Canadian natural and a few others, they’re a little bit dirty oil associations in these companies.

And of course, if the current government, which has been pretty unfriendly to the oil industry in general, and specifically that sector of the oil industry, if they were actually booted out of office, then be tremendously surprised if we didn’t see companies like Suncor breakout past, even this current lid and possibly get into the old one trick, the pre 2000 pony. So these are only remote possibilities. I cannot predict what might happen, but it’s a bit of food for thought either way. I think there’s enough argument behind the chart formation showing that they got quite oversold and the momentum indicators are kicking up on a lot of these stocks. And we also see a decent looking upside potential on oil itself, and we see an argument for possibly oil doing okay through the rolling over of the new COVID variant, which will happen over months. It won’t happen in the next couple of weeks, but it will happen.

And as it happens, we might expect upside as the economy, quote, unquote reopens. So I hope that helps. I guess you could say a cautiously optimistic oil bull. I’m putting my money where my mouth is. We opted to buy into a little bit more oil recently for a trade, and we shall see how it plays out. There’s always a risk on this kind of trade because all of the stuff I’ve talked about today may not actually play through. It’s the nature of the game isn’t it. Thanks for watching. If you have any questions, you can always email us at [email protected] And don’t forget if you are looking for someone to manage your portfolio. That’s what we do. And we do it using a combination of technical and fundamental analysis group, we are unique in that way. Thanks for watching. And we’ll see you next week.

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