I’m filling in for Money Morning today. Normally you can find me over at Markets & Money on Wednesdays.
The plan is to analyse crude oil today.
In fact, unless something else needs addressing, I’ll talk about crude every week for the rest of the year. So, if you want to check out my ongoing analysis, tune into Markets & Money on Wednesdays. If you’re not a member yet, you can join for free here.
Some people believe crude will march to higher prices.
Others say it’s overpriced…
It’s tough to know who’s right. But, objectively speaking, the sector remains broadly ‘hated’ by the market.
That offers an overlooked opportunity.
Interest is returning to the unloved sector.
How to make a fortune with crude oil
I told readers in the June issue of my premium advisory Gold & Commodities Stock Trader:
‘Junior oil and gas companies are worth a look today, given the looming eastern gas shortage in Australia. Also, despite a sharp price drop in recent weeks, oil prices have performed well this year. If oil prices hold and the eastern gas crisis builds in the months ahead, junior oil and gas stocks could outperform.
‘The market is divided when it comes to oil and gas.
‘Most gas stocks remain totally out of favour.
‘I’m considering recommending a number of junior oil and gas stocks in Gold & Commodities Stock Trader. But there aren’t enough reasons to get involved yet. That could change in the new financial year, mind you. If the crude price surges past US$80 per barrel, the story could change for the best.’
The prospects of higher prices have improved over the past few months. That’s why oilers have seen more love in recent weeks. For example, Carnarvon Petroleum Limited [ASX:CVN] hit the mother lode in offshore Western Australia in July:
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The share price did almost nothing for a year. Yet, when the company tapped a gusher, it almost five-bagged for shareholders. Punters could have made around five times their money, if they bought before the discovery.
The company elaborated on 14 August:
‘The Dorado-1 well was one of the higher risk exploration targets considered by our joint venture, and the decision to drill was taken because of the large geological structure (i.e. potential for large volumes of hydrocarbons) and the low drilling cost relative to the potential reward.
‘The joint venture has now announced that the well encountered approximately 120 metres of net oil pay. Both the light oil recovered in the wireline testing and the indicative quality of the reservoir point to a highly valuable discovery.’
The discovery was also a massive boost for the struggling oil and gas sector ― especially at the junior end of the market.
Capital quickly looked for the next stock to run.
IPB Petroleum Limited [ASX:IPB] ― a company worth around $6 million a few weeks back ― was the perfect candidate:
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IPB Petroleum was flagged by the ASX and noted on 23 August,
‘In addition to our ongoing farmout process for the planned drilling of the Idris well, IPB notes Quadrant Energy and Carnarvon Petroleum’s recent Dorado Oil Discovery offshore North Western Australia located in the basin just south of the Browse Basin where IPB’s offshore Permits are located, and also the $2.15B acquisition of Quadrant Energy by Santos announced yesterday.’
Junior oilers ― specifically ― have started to outperform. I believe the times will get better for this end of the market, if crude oil surges beyond $80 per barrel.
That could happen soon…
Current overview of crude oil
Here’s the latest monthly chart for Brent crude oil:
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Brent is the international oil price. The chart shows crude’s in a bullish posture at the moment. It’s trading around major resistance dating back to 2011. That’s when crude oil made the highest yearly closing on the charts. You can see this by looking at the lower pink trend line, which acted as minor resistance into 2014.
The uppermost pink trend line is a parallel of the lower pink trend line. A monthly closing above this line would suggest new highs into 2019/20.
Let’s not get ahead of ourselves though.
There’s lots of work ahead for crude.
It must close above the lower pink trend line on a monthly basis. That looks possible today. We can see crude has crawled along this resistance for the past few months. That seems bullish. It’s also trading towards the upper line of the blue uptrend channel. That line has mostly supported the market since the 2016 low.
The red channel’s lower line offers near-term support, dating back to the 2017 low. This channel suggests something’s also happening behind the scene. Brent crude looks like it could be setting up for a drive to higher prices.
But it couldn’t breakout above the upper line during May.
It came back to re-test support.
But get ready because this could change soon. I wouldn’t be shocked if crude trades in the $80 per barrel zone for most of the year. The question is, if it happens, when will we see a technical breakout?
The bottom line: I don’t think we’ll be waiting that much longer…
Resources Analyst, Gold & Commodities Stock Trader
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