Holding Oil Stocks? Read This…
No doubt about it, it has been a downright ugly few weeks in the oil market. West Texas Intermediate (WTI) crude has plummeted from $107 a barrel all the way down to $100 as of last night’s close.
Of course, the only thing sending WTI to $107 in the first place was the panic created by the expansion of ISIS a few weeks ago. As you’re likely aware, this new Middle Eastern terror group is wreaking havoc in Iraq.
But it turns out the mid-June jump to $107 was the perfect selling opportunity for oil investors. Once they realized Iraq’s southern oil fields are a very safe distance from the chaos in the north, they focused their attention on US inventories.
Speaking of which…
The past few weeks of EIA inventory data has been heavily in favor of the bears. While recent weekly readings show storage depletions, the drawdowns are not nearly big enough to keep bulls in control of the market.
In fact, for the week of July 4th, US inventories were still sitting at 386 million barrels. That’s well above the norm for this time of year.
Take a look…
As you can see, current inventories (blue circle) are substantially higher than they were this time last year (red circle). There’s no question the ongoing oil revolution has the US swimming in crude.
With the price of oil turning lower, is now the time to sell your oil stocks?
Let’s look at a chart of the Energy Select Sector SPDR (XLE) for an answer. In case you’re unaware, this ETF is chock full of top-tier large- and mid-cap oil explorers and producers. It’s essential to watch XLE for important buy/sell signals in the exploration industry as a whole.
As you can see, XLE is still holding above an important bullish trend line (green line) that has been in place since February. With the ETF still in a technical uptrend, it’s not yet time to close your energy positions.
And what about oil?
Look at this chart of WTI…
The commodity has two forms of technical support near current prices. First, the green trend line from recent monthly lows runs right through the $101 area. What’s more, the 200-day moving average runs right below $100.
So in spite of the bearish US inventory situation, oil and oil stocks are currently primed for a rebound rather than a continued selloff.
What do you do?
If you’re long oil stocks, it’s likely in your best interests to hold them for a looming recovery rally. It’s safe to stay long this industry until XLE breaks below the trend line from the February lows (see second chart above).
Bottom line…
The recent downturn in oil has been swift and unforgiving. However, there are still bullish profit opportunities in the oil patch.
Until Next Time,
Justin Bennett
