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Oil Prices Surge, Set Sights on $100: What's Fueling the Rally?

By Investing.com (Calogero Selvaggio)CommoditiesSep 04, 2023 03:16AM ET
www.investing.com/analysis/oil-back-in-the-spotlight-aiming-for-100-heres-opecs-strategy-200641530
Oil Prices Surge, Set Sights on $100: What's Fueling the Rally?
By Investing.com (Calogero Selvaggio)   |  Sep 04, 2023 03:16AM ET
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  • Looks like oil bulls are back in charge, targeting $100 per barrell
  • The energy sector is on the verge of rallying along with oil prices
  • Chevron and ExxonMobil could lead the charge higher

Oil prices have been on the rise, hitting their highest monthly close since October 2022.

What's worth noting is that the former resistance near $74, which had been in place since 2018, has now shifted to become a support level, indicating a strong bullish trend.

Oil Price Chart
Oil Price Chart

The real trend in energy stocks (NYSE:XLE) might just be getting started, as they've yet to make their significant move. Looking at the chart, they've recently crossed the psychological barrier set by the highs of 2008, with the highs from 2011 acting as a support level.

XLE Price Chart
XLE Price Chart

When we look at U.S. stocks of oil and other petroleum products, which are a highly visible part of the global market due to their weekly reporting, they've been on a decline, dropping by 34 million barrels since mid-July.

This downward trend has been observed in 5 out of the last 6 weeks. The decrease in U.S. inventories is seen as a sign that the global market itself is experiencing a deficit. Consequently, spot prices have been on the rise, along with the spread.

As of August 30, crude oil inventories were down by 10.514 million barrels. The data reported on June 28 this year showed a withdrawal of 9.603 million barrels. This has led to an increase in U.S. crude oil futures prices, particularly for monthly maturities.

The spread between 3-month crude oil futures has also entered a state known as 'backwardation,' meaning that the futures contract price is lower than the current spot price of the asset. This spread is currently at $1.14 per barrel compared to the situation in June.

Crude Oil Inventories and WTI Calendar Spread
Crude Oil Inventories and WTI Calendar Spread

Furthermore, in the first half of 2023, the US released approximately 26 million barrels of crude oil from the Strategic Petroleum Reserve. Since the beginning of 2022, around 247 million barrels have been released from this reserve.

Initially, this release contributed to pushing spot prices and spreads down. However, as the US moved to counter oil shortages caused by the Russian invasion of Ukraine, they began accumulating oil once again.

This reduction in the availability of crude oil in the global market subsequently drove prices higher.

This trend coincided with additional production cuts by Saudi Arabia and Russia, which amounted to approximately 75 million barrels between July and August.

According to Bloomberg, Saudi Arabia's total exports in August reached about 5.6 million barrels per day, marking the lowest level observed since March 2021.

Saudi Arabia Oil Exports
Saudi Arabia Oil Exports

At the same time, Saudi Arabia is discreetly working to reduce global supply in an effort to push oil prices back up, potentially into triple digits.

Their strategy for September involves imposing significant price hikes on Europe and increasing the cost of supplies to Asia.

Additionally, the agreement between Russia and the other OPEC+ members should not be underestimated, as it aims to cut oil exports by 500,000 barrels per day.

ExxonMobil and Chevron Stocks to Continue Rising?

Meanwhile, stocks of ExxonMobil Corp (NYSE:XOM) and Chevron Corp (NYSE:CVX) have remained on an upward trajectory.

Exxon Mobil, Chevron Stock Charts
Exxon Mobil, Chevron Stock Charts

The energy sector is showing remarkable strength, with both stocks breaking through previous-year highs that had served as significant psychological resistance points. This suggests that if oil prices continue to climb, we could witness new all-time highs.

While analysts' average targets imply a slight decline in stock prices, indicating they are currently fairly valued, InvestingPro's Fair Value analysis paints a more optimistic picture. It suggests that both stocks have the potential for a 10 percent upside from their current levels.

In terms of financial health, the companies receive an average score of 4 out of 5, according to InvestingPro.

This underscores their positive financial situation, driven by healthy profit margins, strong earnings, high dividend quality, a balance sheet with more liquidity than debt, and free cash flow that surpasses net income.

Chevron Stock Report
Chevron Stock Report

Source: InvestingPro

ExxonMobil Report
ExxonMobil Report

Source: InvestingPro

Conclusion

The energy sector is showing notable strength, with Exxon Mobil and Chevron breaking through previous psychological resistance levels. This suggests the potential for new all-time highs if oil prices continue to rise.

Moreover, It's worth keeping an eye on Saudi Aramco (TADAWUL:2222)'s potential $50 billion stock sale, which is reportedly being considered for the end of this year.

While this isn't the first time the world's largest oil company has contemplated such a move, previous plans have been scaled back.

Back when Mohammed bin Salman pushed for Aramco's massive IPO, it ultimately didn't proceed on the NYSE due to concerns about transparency regarding production, exports, and reserves. Instead, it was listed on Tadawul in 2019.

The interesting question now is whether Aramco's renewed interest in a stock sale is influenced by more optimistic crude oil price projections.

The coming months will reveal Saudi Arabia's decisions regarding its relationships with BRICS nations and the potential geopolitical implications of such choices for the West.

***

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

Oil Prices Surge, Set Sights on $100: What's Fueling the Rally?
 

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Oil Prices Surge, Set Sights on $100: What's Fueling the Rally?

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Comments (13)
Prakash Rathva
Prakash Rathva Sep 22, 2023 5:37AM ET
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mere account mai se saare pese nikal gaye hai
Erikke Evans
Erikke Sep 07, 2023 12:23AM ET
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Biden needs to get booted for no other reason than causing Americans massive inflation on gas prices since he took office.
Steven Angelo
Steven Angelo Sep 07, 2023 12:23AM ET
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Biden has nothing to do with higher gas prices. Fact is the US is now the # 1 producer of oil and Canada and Mexico are top producers. The oil companies keep the price of oil (and gasoline) artificially high. In recent Congressional hearings the big oil CEO’s admitted as much when they said they base pricing on “market prices” rather than any reasonable pricing. The big oil companies produced record profits during the pandemic, smashing old records and continue to do so. So, whoever you are Erikke, stop espousing Republican fake talking points and consider the facts.
Ko Khaing
Ko Khaing Sep 07, 2023 12:23AM ET
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Warren Wesley
Warren Wesley Sep 07, 2023 12:23AM ET
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..Steven, you ignore usa production. yes, oil rich countries have reduced production. yes Ukraine war has effected oil supply. but usa oil supply has been attacked by Biden green deal policy. Biden has been responsible for increase in transportation costs.
Byron Cole
Byron Cole Sep 07, 2023 12:23AM ET
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that's true Steven Angelo
Md Salam
Md Salam Sep 06, 2023 1:06PM ET
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please help me.
Panda Bear Bull
Panda Bear Bull Sep 05, 2023 7:42AM ET
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We have not broken 90But talk about 100??????
Alan Rice
Alan Rice Sep 04, 2023 7:05PM ET
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Is Earth considering sanity ?
Undefined Enigma
Undefined Enigma Sep 04, 2023 4:44PM ET
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Russian sanctioned forced Saudi Arabia to cut oil production, and cutting oil production has now shown the Saudi's they can make more money for less, and stockpile oil for the future aka when sanctions become an own goal for America. For Europe they have become a hammer blow.
Gary Offill
Gary Offill Sep 04, 2023 3:59PM ET
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Greedy oil traders is whats fueling the rally.
Gonzalo Ribeiro
Gonzalo Ribeiro Sep 04, 2023 2:23PM ET
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Strong US data makes 'reacceleration scenario' possible, Fed's Barkin // what's fueling the rally is an historical inflationary crisis that's just barely begun
Alan Rice
Alan Rice Sep 04, 2023 12:47PM ET
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When will Earth crude subsidy expire ? Hint: (Might be TODAY.)
Eric Schorvitz
Ebschor Sep 04, 2023 9:01AM ET
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Great piece. Thank you for taking the time to write this.
 
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