Loading ...The range investors are looking at in oil is between 40-60.
So now that oil is nearing 60 there could be a cue to profit taking at this point.
Heres a editorial from Juback writers.
Oil hit a six-month high on Monday, May 16, on unexpected supply outages from Canada (wildfires in the Alberta oil sands region) to Nigeria (pipeline attacks.) That has led to an extraordinary consensus among Wall Street powers. Goldman Sachs, Morgan Stanley, Barclays, and Bank of America Merrill have all decided that supply has come back into alignment with demand much more quickly than expected. Demand will indeed outrun production in the second half of the year, they project. And that will take the price of oil to $50 a barrel (Goldman) to $54 a barrel (Merrill Lynch) in the fourth quarter.
I can see two problems with these projections–even if they are accurate–for investors and traders trying to make a profit in oil and oil stocks.
First, with oil closing at $47.72 a barrel (West Texas Intermediate) and $48.97 (Brent) Monday the market is getting very close to the target prices set by Wall Street analysts. At what point, I’d ask, do traders decide that it’s not worth hanging around for another $2 to $6 a barrel by the end of the year? In my opinion you should expect, relatively soon, a serious bout of profit taking before the market resumes any march to those end of the year targets. A consensus like the current one among Wall Street oil analysts makes me nervous. The most likely result is a crowded trade as everybody buys the consensus–until, that is, they don’t. Remember the sage advice of Yogi Berra (speaking of restaurants and not stocks, I grant): Nobody goes there anymore; it’s too crowded.
Second, this consensus also sees a return to an excess of supply over demand in the first half of 2017. Goldman, which raised its end of 2016 forecast to $50 a barrel from the $45 it projected in March, also cut its target price forecast for the first quarter of 2017 to $45 from $55. (Goldman sees oil then recovering in price to $60 a barrel by the end of 2017.) Higher oil prices leading to increased production plus the end of some of the current supply disruptions will see a return of the imbalances in the market.
And because stockpiles remain so high globally it won’t take much of a shift in supply/demand expectations to create major uncertainties in the oil market and move prices back down again.
In the very nearest term, however, prices should continue climbing this week on forecasts that on Wednesday the US. Energy Information Administration will report a 3.5 million barrel reduction in inventories. This would mark the first two-week decrease in oil inventories since September after inventories fell by 3.4 million barrels in the week ended on May 6. That brought U.S. stockpiles down to a mere 540 million barrels, the highest level in more than eight decades.