Greetings from the Blue Ridge Mountains of North Carolina. We took on eight inches of snow in about eight hours and then added another foot by the afternoon. It was a good thing that we were able to get to the grocery store on Saturday night. However, I’ll say that Walmart looked as though an army seeking rations had hit it first.
Today, the equity markets are on hiatus in honor of Martin Luther King Jr. However, futures and crypto are still active throughout the day. Commodity futures were again on the move, with gold, silver, and oil in focus up in New York. Let’s talk a little about what’s happening in the oil sector today. That will help us set the tone for the rest of the week.
The Bulls Roar
Despite concerns about the Omicron variant, traders have been pushing prices higher around the globe. The consensus is that the new variant will have a short impact on the global economy. Even though we’re seeing a spike in cases, the broad expectation is that we’ll burn through and get back to business.
As a result, we’re witnessing a boom in cargo shipments of crude around the world. Traders are scrambling to find available ships, which is driving up the price of transportation. Tick up the cost of transportation, and you have higher prices at refineries and ultimately higher costs for end users.
Now I want you to just take away one important element about my insight today. Brent crude is the global benchmark, priced in the Northern Sea. Meanwhile, WTI crude is the U.S. benchmark and priced in New York City.
WTI – which is U.S. crude – is lighter and “sweeter” than Brent. This means that it has less sulfur and is easier to refine and process.
As a result, refineries in China, India, and South Korea are banging on the doors of U.S. producers and demanding more and more of our crude. They’re willing to pay a premium for it, and right now they’re turning up the demand for crude that would arrive at their ports for delivery in April.
With demand for WTI crude surging, it suggests that these countries expect that consumer and business demand will largely have returned to normal within three months. I’ve been correct on the positional move of crude and anticipate that WTI oil will breach $85 this week. But I would recommend that investors be cautious as this nice whole-number target is a nice level for some traders to take profits.
Looking Ahead: Oil To A Hundred?
My July 2022 price target on oil remains just shy of $100.
There remain a few risks in the market that need to shake out. China is still shutting down cities due to the COVID breakouts. We are facing ongoing breaks in flight schedules and thinning air traffic. This slows down demand for jet fuel.
Libya is also expected to return to the global markets with an uptick in output, and OPEC is still kicking around the prospect of increasing output as well in the months ahead. Finally, there is a seasonal aspect to refineries that is linked to their maintenance programs. They typically buy less during this seasonal factor.
Again, I recommend the U.S. oil producers with strong balance sheets that benefit from higher prices. Look to Marathon (MRO), Devon (DVN), Exxon Mobil (XOM), and Chevron (CVX). But use tight trailing stops if you’re trading MRO – the stock has moved into overbought conditions…