My Current Read on Oil Prices

June 12, 2020

by Rob Zdravevski

On May 25th, I called the price of Brent to pause at $43. See the link below.

https://robzdravevski.com/2020/05/25/overall-bullish-on-oil/

That high was reached on June 8th,

Since then (within 5 days) Brent has declined 14% to what I viewed as its first stop being $37, which also the previous resistance mention in the May 25th blog post.

Now, my work suggests a 50% probability that Brent holds this level.

This decline doesn’t seem the beginning of a larger decline but merely a shakeout of later-comers to the Crude “snap-back” rally. It’s a decline within a longer-term bullish trend and technicals give me the same impression.

So, today, I am nibbling (buying) shares in some favoured oil names in Australia and around the world.

Should Brent not hold $37, then $32 is the next level it should visit, test and hold.

A decline to the $32 level would result in the indiscriminate selling of Oil and Gas equities and should prove to be a 2nd (and safer) chance to take a long position in this theme, assuming you don’t choose Brent futures or another security.

Incidentally, I am overall bullish on Oil, irrespective of increasing COVID-19 cases in developing countries and emerging economies and the prospect of a 2nd wave of the virus in developed world. Supply remains constrained (one example is the halving of the drill rig count over the past 4 months ( https://rigcount.bakerhughes.com/static-files/371ff33e-7b57-4d90-bb4b-69b3dff45201 ) and subjectively, it seems there is little to zero premium being attributed for geopolitical & cartel related risk.

p.s. Brent is a better reflection of global pricing, thus I’m not watching the WTI price intently.