Market Insights

Two key energy charts are challenging important levels as investors and analysts look for prices to keep rising.

First is the weekly price of CME’s WTI Crude Oil Futures (@CL), which recently approached $85.50. That was near a peak from October 2018, which at the time was the highest level in more than three years. If prices break this current zone, technical analysts may see little resistance until the March 2009 low around $95.

Second is the SPDR Energy ETF (XLE), which tracks major oil and gas companies like Chevron (CVX) and Exxon Mobil (XOM). It faced an important level around $55 where it collapsed as the pandemic began last year. XLE has spent more than two weeks above that price. Will investors who’ve neglected the sector for years chase high prices rather than miss a yearend rally?

The bullish price action comes at a time of surging need and dwindling supply. Just yesterday, three more potentially bullish stories appeared.

First, Bank of America raised its price target for Brent crude oil to $120 by June (up from $100 on September 14). The analyst cited growing demand for diesel, heating fuel and gasoline. Brent crude, a form of petroleum more common in Europe, closed yesterday around $85.

Second, a Reuters poll found that OPEC countries boosted oil output by only 190,000 barrels per day in October. That was 64,000 barrels fewer than allowed under the cartel’s agreement. The news wire noted that producers could balk at spending money to increase supplies in the near term.

Biden: ‘Pump More Oil’

That outlook was confirmed by a the third headline, a separate Bloomberg report: “OPEC+ Heads for a Clash With Biden as Members Reject Call for More Oil.” The article cited comments from countries like Kuwait, Iraq, Algeria and Nigeria in favor of slow increases in oil production. They apparently rebuffed President Joe Biden saying that Russia and Saudi Arabia “should pump more oil so people can have gasoline to get to and from work.”

These other headlines appeared recently:

• BMO Capital Markets said natural gas could double and crude oil could hit $100. (10/25)
• Iraqi oil minister Ihsan Abdul Jabbar said oil may reach $100 by June. (10/20)
• Bank of America said that portfolio managers increased their holdings of energy stocks by 23 percent to the highest level since March 2012. (10/18)

Despite those reports, crude oil inventories were higher than expected in five of the last six weeks. (That’s potentially bearish.) Another Reuters report yesterday said hedge funds slowed their buying in late October.

In conclusion, energy remains the market’s top performing sector this year by a huge margin. Its 54 percent gain dwarfs runner up financials (+37%) and the broader S&P 700 (+23%). While a lot of good news is priced in, positive stories keep emerging. Investors may want to keep an eye on this long-forgotten sector as the winter sets in and holiday travel season begins.