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Asset Watch
Friday, August 26 2022
While it’s been a rollercoaster ride for crude investors in recent months, the summer swoon may have already run its course. For example, Jeff Currie, Global Head of Commodities Research at Goldman Sachs, told clients on August 18th that, “equity and commodity markets are signaling to investors more persistent demand and higher commodity inflation, while rates and inflation curves are signaling an impending slowdown.”
“Until we see real commodity fundamentals soften, we remain convicted of the former, not the latter,” he added.
Likewise, Saudi Arabia’s Energy Minister Abdulaziz bin Salman said on August 23rd that the physical oil market and the futures price have become, “disconnected,” and the world’s largest oil-producing country could cut output at, “any time.” As a result, crude found some fundamental strength to lift it out of its recent rut.
But another interesting development has materialised. The Energy Select Sector SPDR (XLE) Fund (the blue line) – the largest energy ETF in the world – has massively outperformed the crude futures price in August. However, recent history shows that the divergence doesn’t last very long, and if crude reconnects with the XLE ETF, it implies a substantial upside for the oil bulls.
Currently, the battle lines are drawn between $85.21 (support near the October and November 2021 highs) and $95.23 (resistance near the February and August 2022 highs, and the March and April 2022 lows).
So is crude destined to recapture $100? Or is the XLE ETF on a collision course lower?
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