Breaking News
Investing Pro 0
New Year’s SALE: Up to 40% OFF InvestingPro+ CLAIM OFFER

Where Will Oil Bottom? Looking to the Charts for Clues

By Mike Zaccardi, CFA, CMTCommoditiesNov 28, 2022 06:54
ca.investing.com/analysis/where-will-oil-bottom-looking-to-the-charts-for-clues-200538399
Where Will Oil Bottom? Looking to the Charts for Clues
By Mike Zaccardi, CFA, CMT   |  Nov 28, 2022 06:54
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
CL
-2.01%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XOP
-1.36%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XLE
-2.02%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
OIH
-1.08%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Energy stocks outpace the broad equity market
  • Crude oil has fallen to its lowest price since January, now down year-on-year
  • Possible long-term support on the chart, potential bullish fundamental catalysts

It has been a banner year for energy. The Energy Select Sector SPDR (XLE) is higher by 66% so far in 2022 while two other, more niche, funds are positive by handsome amounts, as well. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has returned 50%, including dividends, while the VanEck Oil Services ETF (OIH) sports a 57% advance.

Not surprisingly, the recent plunge in oil prices has resulted in more sanguine inflation outlooks among traders.

Energy Equities Continue to Work Despite Lower Oil

XLE Daily
XLE Daily

Source: StockCharts.com

As of the close last Wednesday, both the 5-year forward breakeven inflation rate and the “5y5y” which measures expected inflation over the five-to-10-year horizon stood just above 2.3%—near the lowest figures in the last year. The rosier outlook for consumer prices comes after October’s better-than-expected CPI report that sent stocks soaring. But a new factor now comes into play that could keep a lid on rising costs across the economy and the world.

Inflation Expectations Cooling: Near 2.3% Next 10 Years

5-Year Breakeven Inflation Rates
5-Year Breakeven Inflation Rates

Source: St. Louis Federal Reserve

West Texas Intermediate crude oil ended last week at its lowest closing price since Jan. 3. Likewise, wholesale gasoline futures settled at the lowest weekly level dating back to the first month of 2022. Oil is now modestly negative from a year ago even with four-decade-high inflation rates and ongoing turmoil following Russia’s invasion of Ukraine.

Oil Futures: Down 3% Year-on-Year

Oil Futures
Oil Futures

Source: TradingView

Let’s home in on where oil might go from here. Is there much more room to the downside? If so, where’s a good spot to start nibbling long again?

I see important support in the $62 to $66 range. Notice in the chart that WTI has significant volume by price in that zone. That is also where the top end of WTI’s 2019 through early 2020 range highs were seen. Finally, there were a pair of pullbacks to the low $60s last year—the presumption is that that area attracted buyers then, and it will do so once more.

Eyeing WTI Support in the Low to Mid-$60s

WTI Daily
WTI Daily

Source: StockCharts.com

The bearish technical case for oil is that its long-term 200-day moving average is now rolling over and the shorter-term 50-day moving average is decidedly negatively sloped. After failing to notch a new high back in the second quarter, momentum has been on the side of the bears. A failure at climbing above the mid-$90s is another pain point. If we see a bounce in the low to mid-$60s, expect some resistance near $76.

Fundamental support could come from a reopening in China or even the U.S. administration seeking to take advantage of lower prices by refilling the Strategic Petroleum Reserve which is the most depleted since March of 1984.

Bullish Catalyst: Refilling the SPR

SPR Levels
SPR Levels

Source: ZeroHedge, Bloomberg

The Bottom Line

I see further downside ahead for WTI oil prices. The key commodity settled at a fresh weekly closing price dating back to January on Black Friday and is now negative on an annual basis. Look for support in the low to mid-$60s.

Disclaimer: Mike Zaccardi does not own any of the securities mentioned in this article.

Where Will Oil Bottom? Looking to the Charts for Clues
 

Related Articles

Naeem Aslam
Gold to Retreat, Oil Eyes OPEC Meet By Naeem Aslam - Jan 27, 2023

Gold Gold prices are on track to post losses this week, mainly for two reasons. Firstly, this week, we have seen strong US economic data, which indicates that the US economy is...

Where Will Oil Bottom? Looking to the Charts for Clues

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
el sa
el sa Nov 29, 2022 6:46
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Some where between $63 - 66
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email