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Market Oracle FREE Newsletter

Trading Lessons

Why I Continue to Like Black Gold

Commodities / Crude Oil Mar 11, 2013 - 03:46 PM GMT

By: InvestmentContrarian

Commodities

George Leong writes: Oil is one of the most volatile of the commodities and fluctuates with the prospects of the global economy and of course the happenings in the Middle East.

Yet, if you really look forward, how can you not like oil given the growth in China and, more importantly, the emerging growth in India?


In June 2012, when oil prices fell below $80.00 and some were saying to sell, I was positive, as the chart suggested support would surface and the weakness was not a trend.

The U.S. Energy Department increased its projections for crude oil prices for this year, citing that global oil consumption would rise to a record in 2013. (Shenk, M., “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg News January 8, 2013.)

Take a look at the price chart for the spot West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, oil prices slid despite multiple attempts at rallying back to the $100.00 level. The spot WTI is again back below its 50-day moving average (MA), but I expect there will be decent support at the lower trendline and the 200-day MA.

The chart is displaying what is looking like a bullish flag formation setting up, which means higher oil prices could be coming to back over $100.00 in the best-case scenario based on my technical analysis. You need to be also watchful of the $80.00 support level, which was breached on several occasions; but in each case, a rally followed.


Chart courtesy of www.StockCharts.com

I believe oil will continue to hold above at least $80.00 a barrel going forward and will rally as the global economy strengthens. If you extend the oil futures contract to 2021, the current prices range from $83.00 to $92.00, so I’m not that worried and don’t have the urge to go and sell as some market watchers are saying.

While I expect demand for oil will rise should the global economy continue to improve, the ongoing geopolitical issues in the Middle East and North Korea remain real threats that could easily drive up oil prices.

I also expect oil prices to be supported by the Organization of Petroleum Exporting Countries (OPEC). OPEC estimates oil prices in nominal terms could hold in a range of $85.00 to $95.00 a barrel for the rest of this decade, according to its internally produced “World Oil Outlook” (WOO) report. The report blames the spikes in oil prices as driven by speculators, which I fully agree with, but it is part of the business. An interesting note in the WOO report is the assumption oil will reach $133.00 per barrel by 2035.

It’s interesting to understand how the oil cartel thinks. The report says the current level in oil prices is due to the state of the global economy that “will be marked by below average trend growth, in combination with high unemployment rate in developed economies and continuing global growth imbalances.”

And while oil prices are estimated to trade below $100.00 a barrel for the next eight years, you know that there will be volatility that can drive prices well above $100.00.

In my view, I would be looking at accumulating and NOT selling oil stocks on weakness.

Source:http://www.investmentcontrarians.com/stock-market/why-i-continue-to-like-black-gold/1657/

By George Leong, BA, B. Comm.
www.investmentcontrarians.com

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

George Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. See George Leong Article Archives

Copyright © 2013 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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