Deja Vu: Oil Prices are Climbing Higher, Again

By:Christopher Vecchio, CFA

Crude oil is up 12.07% month-to-date

Crude oil prices (/CL) have hit fresh yearly highs and 52-week highs as supply/demand imbalances are flaring once again.
Despite struggling U.S. stocks otherwise, energy has been an outperformer since the start of August.
XLE, XOP, and CRAK remain well-positioned to outperform their peers.

Year-to-date price percent change chart for /CL, XLE, XOP, and CRAK

Much of this is a retread of what we’ve been saying since July. There is a supply/demand imbalance that favors higher crude oil prices (/CL) in the near-term. We now have some new data to support that perspective: stockpiles in Cushing, Oklahoma, the crucial U.S. storage hub, are reaching what are called “tank bottoms.” Not only is production down, but inventories are dwindling as well.

To keep it short and sweet: It's still a good time to be “an oil man.” Price action seen in /CLZ3, XLE, XLF, and CRAK underscore that view.

/CL price technical analysis: daily chart (February 2023 to September 2023)

/CLZ3 hit a fresh yearly high (and the continuous contract hit a 52-week high) today as supply concerns rear their ugly head once more. Momentum is still bullish, with /CLZ3 above its daily 5-, 13-, and 21-day exponential moving average (EMA) envelope, which is in bullish sequential order. MACD has issued a bullish crossover while above its signal line again, and slow stochastics are turning higher towards overbought territory. While /CLX3 has reached the 100% Fibonacci extension of the June 28 swing low/Aug. 10 swing high/August 28 swing low range at 93.03, /CLZ3 has not yet: 92.40 is still in reach. The technical measurement higher may be complete, which turns the technical outlook into a pure momentum play at this point.

XLE price technical analysis: daily chart (July 2022 to September 2023)

A few days ago, it appeared that XLE’s uptrend from the June and August lows was imperiled. Alas, a return above the trendline reinforces the view that bulls are back in control. Momentum is improving once again, with XLE above its daily EMA envelope (which is in bullish sequential order, moving average convergence/divergence (MACD) on the cusp of issuing a buy signal while above its signal line, and slow stochastics racing higher. It remains the case that a return to the November 2022 high at 94.71 is in focus.

XOP price technical analysis: daily chart (November 2022 to January 2023)

XOP struggled more than XLE during the recent downturn but is now flexing its muscles as the leader on the way back up. The momentum structure is not quite fully bullish yet, but the corrective move back into the August bull flag has been completed; the bullish breakout is in play once again. As such, the technical perspective looks for XOP to return to its November 2022 high at 161.42; only a meaningful setback in crude oil prices would undermine this outlook.

CRAK price technical analysis: weekly chart (September 2019 to September 2023)

CRAK tracks refiners, not producers, like XLE and XOP. It was previously noted that CRAK was on track to return to the all-time highs near 36; CRAK topped at 35.89 before taking a breather. That said, dwindling supplies and a diesel fuel shortage (particularly in the Northeastern U.S.) is likely to keep refiners humming along in the very near-term. The breakout from the symmetrical triangle that began in June 2022 remains the primary thrust, keeping in focus the much longer-term ascending triangle that may have formed dating back to 2018. All-time highs are in focus unless short-term momentum buckles.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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