Stock

Monthly Chart Points to Much Higher Oil Prices Coming

Published

October 11, 2023

Before we begin, just a note to mention that TLT took out the fast MA featured in the October 10th daily, while SPY underperformed. If that is a trend, it behooves you to review that daily.

Loyal readers of the Daily know that we often focus on zooming out to longer timeframes to assess bigger trends. Clearly, the 80-month moving average in small caps and retail has become an important support “line in the sand” to measure the potential for recession and/or stagflation. In the case of the chart of USO (US Oil Reserves), the 80-month moving average is a line in the sand to measure the inflation narrative or higher oil prices likely coming.

Historically, the 80-month moving average (green line) served as resistance in USO since 2008 when the market crashed. Then, from March 2022 until July 2022, USO traded above the 80-month MA. However, that was short-lived thanks to rising interest rates.

3 months ago, that changed. Once oil cleared $80 a barrel, we saw the price spike to about $94.00. USO then cleared the 80-month MA in August on the heels of OPEC+ and the US dwindling oil reserves, plus higher-than-expected demand. The oil market appears to have priced in current interest rate values.

Although the current geopolitical situation is not a pure impact on oil prices, what the chart suggests is that lack of impact can reverse to a much larger impact. The USO price closed the month of September at 76.00. This month, USO opened higher. Currently, the price is above the 80-month, but slightly below a pivotal point at 76.00.

Quite simply, a move over 76 suggests higher prices with a good risk point to under 73 or the 80-month MA. That would correspond with oil holding $80 per barrel and returning above $86.00. More importantly, if the trend is your friend, this break higher of the 6-7 year business cycle, if it sustains, should drive oil prices to the next target of around $110.

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