Time to Buy Oil Stocks Again?

Western Texas Intermediary (WTI) crude oil got above $80 a barrel earlier this month (March 2024) and is holding above that level. As we lead into the driving season, which begins around Memorial Day, this has traditionally been the season when oil stocks get accumulated. Many of the oil names have already had a nice move higher and are either poised to break out or pullback. Many of these names are correlated to oil prices, so it’s important to see what crude does here — whether it holds its 80 support and pushes higher or fails and retreats below.

WTI Weekly Chart

Some commentators are saying that crude prices could soften because a deal for a permanent ceasefire between Israel and Hamas is getting close to fruition. If that sort of deal is reached, then crude prices could very well drop, at least in the short term. Remember, any deal with Hamas would mean a “get off the hook card” for Iran and a relief of the tensions in the Red Sea.

In my opinion, there is not going to be a ceasefire and Israel, as it has clearly indicated, will invade Rafah, the last stronghold of Hamas in Gaza. Israel cannot accept an end to the war before completely destroying Hamas’ ability to launch other attacks against it. As long as Hamas has thousands of armed terrorist fighter in Rafah, this objective cannot be achieved. While there is a possibility that Hamas will agree to release hostages in exchange for a limited ceasefire or a few weeks, this will not indicate an end to the conflict.

In addition to the conflict with Hamas, Israel will have to take military action against Hezbollah in the north. Over 100,000 Israeli civilians are displaced from their homes in the northern part of Israel as a result of continued Hezbollah rocket fire from Lebanon. The Israeli air force has continuously been striking Hezbollah terror targets in Lebanon, but that hasn’t stopped. or even slowed down, Hezbollah from its rocket, missile and drone attacks. The US has tried to mediate a peaceful solution in which Hezbollah would stop the attacks and withdraw several miles from the Israeli border. But Hezbollah has rejected this proposal. The only choice Israel has now is to forcefully push Hezbollah back. It’s not a matter of IF Israel will attack, but rather WHEN.

Hezbollah is a close proxy of, and takes orders from, Iran. If there is a war between Israel and Hezbollah, Iran will be in it too. The threat of a wider conflict will be even greater than what is has been as a result of the war against Hamas.

Therefore, I wouldn’t bet on a pullback in crude as a result of a ceasefire agreement. If anything, I’d think that crude would continue moving higher. Of course, there are other, larger, macro factors involved that could effect the price of crude — but I’m just focusing on the geopolitical situation in the Middle East and its potential effect on prices.

If you want to bet that oil will go higher and take oil equities with it, take a look at Exxon (XOM), which looks like it could continue moving higher, on the weekly chart. You can also see the TTM Squeeze firing off, showing that there is growing momentum to the move.

XOM Weekly Chart

XOM Weekly Chart

Unfortunately, I’m not a prophet and have no idea what crude or XOM will actually end up doing. If I did, I’d be all in! So this isn’t a recommendation or buy/sell advice. You need to do your own work and make your own decision. But from a purely educational perspective, the chart and macro situation seems to be favorable for a potential move higher.

Good Luck!

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