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This could be the new bullish trend that many analysts and investors expect. The price action just came back above the psychological level of $60 per barrel. This is the real first test for the rebound started in last February.
Remember: the large decline of Oil drove prices from a high of $147 in July last year (point A on the chart), to a low of $33.55 posted in February this year (point B). This was a 77% drop in just 7 months.
Did you do it?
Were you unable to resist temptation and switch on for the budget… in high definition?
For all the talk of ‘razor gangs’ and ‘tough decisions’, the 2009-10 federal budget is still going to rip $290 billion from your pockets. At a time when we’ve been led to believe that ‘revenues’ have collapsed, that’s only $13 billion less than the final outcome for 2007-08.
That’s less than a 5% drop, which wouldn’t even count as a correction in the stock market, let alone a collapse.
And that $290 billion doesn’t even include the $200-plus billion the government is borrowing to pay for its hare-brained schemes.
As for expenses, well, true to form, it’s up-up-up… for 2007-08 the federal government spent a whopping $280 billion. For 2009-10 it’s forecast to be an even whoppinger $338 billion. An increase of over 20%.
Oil is currently trading around $54 and stocks have been bouncing for almost two months. This is an ideal context to look at oil-related stocks on the Australian equity market. Let’s have a look then at probably the most famous one, Woodside Petroleum (ASX: WPL).
First, a weekly chart to see the “big picture”: in November 2008, despite a false break that drove the price towards a low of $26.81 (point A on the chart), the stock found some support around $30, a previous level that was the initial point of a strong rally in late 2005/early 2006.
The large decline started almost one year ago, during the second fortnight of May 2008. The stock pulled back the price from $70.51 (point A) to $26.81 (point B). That’s a 62% fall.
This commodity seems to have an endless bearish trend. All the other commodities (oil, gold, base metals, agricultural) have more or less benefited from a renewal of risk appetite among investors and eventually prices rebounded after the lows posted everywhere in last December. Prices had declined so sharply in just a few months that it created investment and trading opportunities.
This scenario has been similar for all commodities, except one: natural gas.
The chart is indeed really ugly, and the perspectives for both short and medium-terms are not better. From the high posted early July last year ($14.84, point A on the chart), prices declined by 77%. Last Friday, price closed at $3.4020. If we calculate from the high of October 2005 at $24.47, it’s a fall of 86%!
The stock of the oil and gas exploration and production company Santos (ASX: STO) has been experiencing a positive year so far. However it is more than likely that a correction will drive the price lower in the coming weeks.
Let’s see why. First, we have plotted on the chart both the stock price action and the Natural Gas futures contract (in green). From June 2007 to late 2008, the two securities have been positively correlated: STO was rising in parallel with the price of Natural Gas, and they were also both correcting with pretty much the same timing and with the same duration.
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