Greetings, my Slope brethren. I’m not usually a fan of sequels, but sometimes they’re good. Diehard 2 comes to mind. The Empire Strikes Back was pretty good. But, an oil sequel? “Oil? Oil? Who said anything about oil?”. Wasn’t this the one commodity that was going down these days? I didn’t expect to do any market writing at the moment, and then I saw this tweet from the President.
Leaving the politics alone, my first thought when I read that tweet was of the article that I wrote in August of 2020, “Striking Oil“. In the article I referenced Tom McClellan’s gold to oil analog that was at that time calling for the likely start of a bullish move in oil. I also discussed the supply/demand fundamentals of the oil market, including how China’s economic Achilles’ heel is their consumption of oil. The post also discussed how the United States used oil as a weapon during World War 2 to help defeat Germany. With regards to the rise of China’s power versus the United States’ declining power, I wrote about an inflection point coming between the two nations:
“What will this inflection point look like? What will the ramifications be? The world as we know it will be reshaped. This reshaping of the world will be led by the relationship of China and the United States. Will the United States simply learn to co-exist with China as it increases its share of global dominance and power, or will the struggle for power be something more confrontational and violent? History would argue that the latter is the more likely outcome. The United States does not have a precedent of simply voluntarily ceding power.”
– “Striking Oil“
So where are we at today technically? As a reminder, McClellan’s gold to crude oil analog works off of a 20 month lag. So, what gold was doing 20 months ago should give us a good echo of what to expect now. At the beginning of September 2023, gold was preparing for one final burst of selling before it would start a bullish move that is still proceeding. What does that tell us for today? If the analog is meaningful, at some point over the course of the next month I would expect crude oil to begin a bull market that could last into 2027.
Looking at the daily chart of crude oil, of late the chart made an important breakdown around the $65 level. After breaking below that level at the beginning of April, crude oil retested the breakdown, and then started to fall away again. For those looking to enter long positions on /CL I would suggest using the $65 level as a pivot. If price breaks above that level over the course of the next month or two, this would likely be a good spot to enter long with a stop underneath.
