I received this email yesterday from Eric Kaufman, arguably the best energy centric portfolio manager I know, with May crude oil trading towards $54 per barrel. While we didn’t get the exact low, markets are kinda like horseshoes and hand grenades, all you have to do is be close! To be sure, oil was a big winner on Tuesday with a rally of ~3.5%.
The recent rally began on Monday when Saudi Arabia surprisingly raised prices to Asia over the weekend. The rally extended yesterday driven by the headlines, “U.S. Raises 2015 Gasoline Demand Estimate to 9.07m B/D vs 9m previously / U.S. Gas Pump Price to Average $2.45/gallon this Summer” and “[The] EIA raises demand for oil forecast by 60kbd and LOWERS supply growth for 2015 from 700kbd to 550kbd.”
The result left crude oil $10 above our “bottom call” of last January, and if it can decisively break out above $54/barrel, the chart pattern will look like what a technical analyst would term a “reverse head and shoulders” bottom with an intermediate-term price target of $60 – $65 (see chart on page 2). Of course crude’s bottom was telegraphed by many of the energy indices, which are now up roughly 11% from their mid-January lows. While we would expect some upside resistance at the $54 “neckline” of the aforementioned chart pattern, we believe eventually prices are headed higher.
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