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Asset Watch

Is it crude oil’s time to shine?

 

Thrusday, January 19, 2023

The last several months have consisted mainly of lower highs and lower lows thanks to crude oil being stuck in a downtrend since June. However, as China’s zero-COVID policy weighs on demand, a Lunar New Year revival could be on the horizon. Goldman Sachs Global Head of Commodities Research Jeff Currie said on Jan. 11:
“What is the best reopening play? It is oil. What is idled? Planes, trains and automobiles. You turn them all back on; that’s going to be a big pop in oil demand.”
Brent oil often trades at a slight premium to crude oil, so could Currie’s $110 target for the former in Q3 2023 coincide with the latter above $100?

If so, the recent price action implies that ‘the trend is your friend,’ and be mindful of false breakouts. The blue line on the chart shows how the 20-day moving average primarily acted as resistance from late June until October. Furthermore, it also ended the rally in early December.

Additionally, four false breakouts above the 20-day MA have materialised since June, with each iteration culminating with another breakdown. Now that a fifth breakout is present, the same playbook applies: if the crude oil price can hold above the 20-day MA, the technical implications help confirm Currie’s bullish fundamental thesis. If not, the downtrend remains, and caution is warranted.


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