Setup for WTC Crude Oil and CVX – Nov. 22, 2022

Crude oil prices have been falling since reaching close to 124 in early June ’22. On September 23 WTC crude hit $76 and then bounced to $94 before pulling back to $81. The $94 level then served as resistance again on Nov. 11. From there WTC went lower and found support at the $80 level until yesterday (11/22), when it blew through $80 and through $76.

The break below $80 and continued quick move down was seemingly connected to a report that OPEC was considering increasing crude supplies. When that report proved to be inaccurate, WTC bounced off of the $75 level and moved back above $80. The question now is whether WTC will head back down and break through $75 support and head to the 60s or continue to move higher towards $94 resistance.

Here’s the daily chart which clearly shows the support and resistance lines:

Oil equity names have been moving lower along with crude prices. Chevron (CVX) topped out at around $190 on Nov. 11 and then headed lower. If y0u look at the daily (below) you’ll see that CVX bounced off the 34 ema (blue line) at around 175.50 on 11/22 and then reversed, along with crude, to end the day just over 181. It will probably continue to follow WTC, either up or down.

There’s no way to know which way it will go.

The macro picture still looks strong for crude, since supply is stay way short of meeting increased demand. The onset of winter and continuation of the Russia-Ukraine conflict are strong tailwinds for crude, and CVX, to maintain support or move higher. On the other hand, the China lockdowns continue to weigh on oil demand. But China can’t stay locked down forever, and when they do finally reopen, demand will get even greater. OPEC has made it clear that they are not going to increase supplies in the near future. So supply seems challenged for the foreseeable future.

Of course, if the US (and worldwide) recession deepens and the overall stock markets heads lower, the oil equities will likely be brought down with the rest of the market, although possibly not to the same extent. If inflation goes higher or stays at this level, oil prices will likely remain stable or rise as well.

Therefore, a case can be made for both the bulls and bears when it comes to crude and the oil stocks. But it seems as though the smart money continues to stick with and remain overweight oil, and the macro situation looks positive.

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