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2015/10/05

Oil Demand Up

As you know, it's been tough  sledding for oil longs...
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Oil Demand Up
By Christian DeHaemer | Monday, October 5th, 2015
Christian DeHaemer

Below is the two-year oil price chart.

As you know, it's been tough sledding for oil longs. This chart shows lower lows and lower highs. That's the definition of a bearish chart. The sideways formation, or pennant, over the last month suggests the oil price will fall and retest that $38 low.

wti10

The good news, of course, is that nothing beats low oil prices more than low oil prices. Demand is up.

wd10

Commodities are the ultimate definer of price elasticity of demand. When stuff is cheap, you use more of it. When it is expensive, you save it.

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Yesterday, I filled up my yellow Hummer at $1.99 a gallon. Low oil prices are boosting global demand.

Global oil demand rose 2.0% year over year to a new record high last month. That's the best growth rate since 2011. These indicators show that the global economy is expanding.

Here is the shale producers ETF (NYSE: IEO):

ieo10
The chart shows a double bottom at $53, a bounce above the downtrend. The ETF share price is well below the 200-day moving average. Volume has ticked up, and there is an MACD cross below the zero line. All of this is bullish in the short term. I expect the IEO to bounce between $53 and $65.

The price of oil will rebound at some point — it always does. If oil goes back to $100, you could expect the IEO index to double in price.

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Real Bet on Oil

The real bet on oil would be in emerging market producers and explorers. Tullow Oil found a mother lode of oil — the biggest in two decades — just a few years ago. Its stock went up 3,000% on the news.

The company is still pumping oil and will hit its targets for the year.

The downside is that the company has a lot of debt, but the bankers recently confirmed that all was well. The stock price is up about 22% over the last week on this news. That said, there is no bottom pattern on this chart.

tlw10

The point is that you need to gather your buy list for the day that oil prices turn around. It can — and does — happen overnight.

You should have a couple of international oil producers in your toolkit simply because they will return five times as much.

If oil returns to $100, it stands to reason that Tullow (LSE: TLW) would go up 500% to 1,000 pence, where it was the last time oil was in the triple digits.

Seeds of War

There are a number of scenarios that would send oil back to $100 a barrel. The most likely is some event in Saudi Arabia.

Heated enemies are now flying warplanes and dropping bombs in the limited airspace over Syria.

Four of the participants, Russia, Iran, the United States, and Saudi Arabia, are the top four oil producers in the world. Things fall apart.

All the best,

Christian DeHaemer  Signature

Christian DeHaemer

follow basic@TheDailyHammer on Twitter

Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.

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