Technical Analysis of Oil
[Week nr:08, 2007]
The 10$ decline of January 07 rebound from 50$/b. up to nearly 60$/b. of oil. This rally looks like more of a bear market rally.
Factors influencing the short term price of Oil
In the short term the two most significant factors which are able to influence the spot price of oil is the geopolitical factor (primarily Iran) and the weather in the northeast U.S. The coming warmer weather could drive the price of oil to the downside in the short term, given that the nuclear conflict is not escalating. Another factor could be the OPEC production cuts and their effects on the crude supply data, most analyst are leaning toward the “not much” side.
Technical analysis
Technically we see that the moving averages are since October 06 signaling a bearish trend for oil. The MACD seem to be in place to give a sell signal in the short term. The technical momentum indicator RSI is at a fairly high level, but at 57 it is still to low to give us a sell signal.
Trading “Short” strategies during the coming days/weeks.
Currently oil price: $ 59,9
Stop loss at $ 61,5 and $ 64,5
1st target: $ 57,5
2nd target: $ 55
3rd target: $ 50-51
In the case of oil reaching the $ 64,5/b. in the short term, we would have to turn around our positions from shorting to getting long.
Oil stocks
Oil stocks still has comparatively low valuations with high single digits P/E:s (Chevron: 9; Total: 9,7; BP: 9,5; ConocoPhillips: 6,8; Repsol: 9; Shell: 8,3) so we still think that they are good investments alternatives in the long term. We see in the figure below that the Amex Oil Index (XOI) tends to move from a bull market in 2005 into a consolidation period for oil stocks. Although the rapid pace of mergers and acquisitions continues, the market is clearly sending a message of caution to anyone who cares to look at the charts. We ask ourselves if it is the fear of nationalization of oil companies that has built a fear premium in the pricing of oil stocks...
In the short term the two most significant factors which are able to influence the spot price of oil is the geopolitical factor (primarily Iran) and the weather in the northeast U.S. The coming warmer weather could drive the price of oil to the downside in the short term, given that the nuclear conflict is not escalating. Another factor could be the OPEC production cuts and their effects on the crude supply data, most analyst are leaning toward the “not much” side.
Technical analysis
Technically we see that the moving averages are since October 06 signaling a bearish trend for oil. The MACD seem to be in place to give a sell signal in the short term. The technical momentum indicator RSI is at a fairly high level, but at 57 it is still to low to give us a sell signal.
Trading “Short” strategies during the coming days/weeks.
Currently oil price: $ 59,9
Stop loss at $ 61,5 and $ 64,5
1st target: $ 57,5
2nd target: $ 55
3rd target: $ 50-51
In the case of oil reaching the $ 64,5/b. in the short term, we would have to turn around our positions from shorting to getting long.
Oil stocks
Oil stocks still has comparatively low valuations with high single digits P/E:s (Chevron: 9; Total: 9,7; BP: 9,5; ConocoPhillips: 6,8; Repsol: 9; Shell: 8,3) so we still think that they are good investments alternatives in the long term. We see in the figure below that the Amex Oil Index (XOI) tends to move from a bull market in 2005 into a consolidation period for oil stocks. Although the rapid pace of mergers and acquisitions continues, the market is clearly sending a message of caution to anyone who cares to look at the charts. We ask ourselves if it is the fear of nationalization of oil companies that has built a fear premium in the pricing of oil stocks...
Summary
If you do not felt comfortable shorting the oil stocks/indices, we recommend you an extreme caution in putting new money at work in the energy sector. Our approach at this point is to start taking some profits.
Good investing,
Björn Laurenzatto
If you do not felt comfortable shorting the oil stocks/indices, we recommend you an extreme caution in putting new money at work in the energy sector. Our approach at this point is to start taking some profits.
Good investing,
Björn Laurenzatto
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