An attack on Saudi Arabian oil fields has removed about 5% of global oil supplies. As a result, oil prices have jumped.
It sounds scary for oil and stock investors, but for the time being, the chart tells a different story. All investors, not just oil investors, ought to pay attention to this chart.
Please click here for an annotated chart of oil futures CLV19.
Note the following:
• From the chart, note the down-sloping trendline.
• Oil gapped open.
• Oil has, as of this writing, broken above the trendline.
• Note from the chart that oil has not touched the resistance level.
• Even before the attack on Saudi oil fields, oil was tracing higher lows, as shown on the chart.
What does it all mean?
The fact that oil did not break above the resistance shown on the chart indicates the following:
• President Trump would cushion the oil price increase by releasing oil from the Strategic Petroleum Reserve, if needed.
• Other countries also have oil reserves that may be used to cushion a price rise.
• Saudi Arabia has a substantial stockpile of oil that it can use to keep the market supplied with oil.
• Other OPEC countries and Russia can pump more oil.
• It is relatively easy to increase production of oil in the United States.
• In spite of sanctions against Iranian oil, Asian countries may end up buying more of it.
• The world economy is slowing. The latest data from China shows that industrial production is at its lowest point in 17 years.
• A slowing world economy uses less oil.
• Since the U.S. is self-sufficient in energy, there should not be much impact on the U.S. economy.
• Saudi Arabia is claiming that it will bring back about one-third of the production rather quickly.
The situation should calm down without much of an impact on investors, unless scenarios similar to the following occur:
• Similar attacks on oil production not only in Saudi Arabia, but elsewhere in the Middle East, happen again and again….Read more at MarketWatch.
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