Oil Outlook: Trade It But Don’t Own It

Oil Markets Are Rising

The oil price war and COVID-19 pandemic certainly put a hurting on the oil markets. The price of WTI and Brent fell to multi-year lows counted in terms of decades showing just how unstable the market was. Not only was supply high, production and capacity were near record levels while demand simply vanished. Now the oil price is rebounding and the charts look good for that trend to continue. The caveat is that resistance to higher prices lurks in the shadows promising to cap gains in the not-too distant future. With the outlook for demand still so tepid, I expect oil prices to remain low regardless of what they do now which is why I say trade it (oil prices) but don’t own it (as in oil stocks, not for long anyway).

The chart of WTI oil looks pretty bullish, largely due to the long-term bottom and the fact of global post-pandemic economic reopening.You know, what they call pent up demand. The sleeper must awaken kind of thing. The economy was shut down and that put a hurt on the demand factor. Now the economy is reopening and demand is back. Go figure. Anyway, the trend is up and a continuation signal is in the making. The signal I’m talking about is a nice little bullish flag within a clear up trend. The flag should lead prices up to the $44/$45 level at least with a chance of break through to new higher highs.

The risk though, is that in the U.S. at least, the COVID-19 pandemic is far from over. A second wave of shut-downs will surely weigh on demand and oil prices with it. That said, there is a fairly strong technical target for resistance at the $44/$45 level that could easily keep prices in check. The $44/$45 level is potentially strong because it is the bottom of a previous range that was broken with vigor early this year. As such, it is the key resistance target and will mean the difference between higher prices and a retest of the recent lows. I do not expect WTI to advance beyond this point significantly, I also do not truly expect another correction to be as deep as the previous low but you never know.