Are Oil Prices Heading To New Highs Or Are They Going Down?

Oil prices have been the center of attention for both investors and consumers.

As inflation continues to rise, apparently everyone has an opinion and a story.

It goes all the way to the Oval Office and the Fed, to our friends and family who can’t believe what it costs to fill up at the gas station and get a steak at the grocery store.

Fed inflation gauge hits 30-year high, October consumer spending surges

As supply chain bottlenecks slow logistics, oil prices have risen. The increase in energy demand only adds to the pressure on prices. It’s classic economics. This is why the Biden administration has tapped into the strategic oil reserve.

Oil prices underwent a very orderly “ABC” correction from July high to August lows.

Soon after, oil prices took off again. After hitting a low on August 23, crude oil has pulled off nine straight weekly gains.

This has given stocks like Exxon Mobil a huge boost. (XOM) – Get the Exxon Mobil Corporation report, Pioneer of natural resources (PXD) – Get the report from Pioneer Natural Resources Company and chevron (CVX) – Get the Chevron Corporation Report.

Then the gains slowed down. Oil prices are up for the week, but before that they had lasted for four consecutive weeks decline.

However, one could argue that this streak of losses is another orderly “ABC” correction.

Are new highs going to be on the table again – just like the last correction – or are there more downsides to come?

Petroleum trade

Daily oil price chart.

The most recent drop took oil back to its summer highs near $ 77, while the VWAP measure from that high served as support near $ 74.50. The 21-week moving average also helped.

Over a three-day period, oil prices hit a nice low near $ 75 before rising.

The problem now?

Crude falls below its 50-day moving average and falling 10-day moving average.

The bulls will have to see oil cross these thresholds if they are to have any chance of hitting the highs. Obviously, a weekly rotation would be incredibly useful, but that’s all the way to $ 81.81.

If we quietly end the week – or rather, if we don’t hit new weekly highs this afternoon or Friday – then a weekly rotation over $ 79.23 is possible next week.

This would launch crude above the 50 day moving average and give the bulls a chance to push oil up to the 21 day moving average. Above that, the $ 85 area could be in play again.

On the downside, look at the previous high near $ 77. A move below that likely puts this week’s low on the table near $ 75.

Below that, it could potentially push oil prices down towards the $ 70 area and the 200-day moving average.

It’s a pretty straightforward way of looking at it. Either we cross this week’s highs and major moving averages, or oil may pull back.

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Felix J. Dixon