Short term turbulence aside, Oil is bullish

Many traders and investors don't get that Oil production isn't regulated by a faucet that we can turn on or off. It's more complicated than that. It requires scheduling, infrastructure changes, financing and lot's of operations management to drastically change the production of Oil. When we are faced an event of such extremity, the pandemic, which reduced oil demand to almost nothing, Oil producers reacted by limiting supply.

The time has come for Oil demand to reach pre-pandemic levels, but the Oil producers can't just turn on a faucet to increase supply. They are facing infrastructure and capacity constraints, so it is not easy to ramp up production again so quickly, they will lag behind with production.

Guess what happens when the supply can't meet the demand of an energy resource required to operate half the planet? You are correct to assume the price will keep rising until it finds a balance when the supply and demand are in equilibrium.

Our analyst Myrsini Giannouli wrote in her weekly outlook (found in our website):

Even though OPEC has recently agreed to increase output by 400,000 barrels per day, supply is still not enough to meet the growing demand. US producers have also been trying to increase their output, but after having to severely limit output during the height of the pandemic they are facing infrastructure and capacity constraints, so it is not easy to ramp up production again so quickly. China on the other hand, has recently reached an agreement with the US to release crude oil from its national strategic stockpiles next month, in an attempt to tame soaring oil prices.

So I've been Bullish on oil since spring of 2021 when the pandemic weakened. Still bullish now, because I don't see any lockdowns, so I don't expect oil demand to be reduced by the pandemic anytime soon.

Let's get to the charts starting with the weekly Oil chart (each candlestick is a week):

Oil has been in a clear uptrend since March 2020, when the heavy lock downs stopped and demand started rising,. As long as demand is rising it should continue with the uptrend. There is no reason to go against the trend at the moment, unless to capture short term movements.

Looking at the 1 hour chart (each candlestick is an hour), the price is moving above the 50 period weekly Moving Average (blue color), as it does in the weekly chart.

Entry : I would understand both a Long Trade (1) and a short Trade (2) in the current price.

1. The thesis for short is that the price moved below the 50 period moving average and broke the short term trend line. However it's a risky trade providing risk to reward about 1:1, since I cannot thing of a Take profit below the 80.550 area.
2. The thesis for the long trade is that Oil is in a clear uptrend, and it has retraced to the mean, and moving across the trend line. It't not that this trade doesn't have risk, but the risk is smaller with Stop Loss at around the 83.091 area and the reward is higher with a take profit at any price you see fit. Do you believe oil can go to $100? $125. It definitely seems possible under the circumstances.
3. If it does reach the 80.550 area, a previous support, that's also a very good long new entry. More conservative bullish investors might wait for this price and enter with a Long Limit order instead of trading (1) or (2)

Regardless, of short term trading I would keep a long term Bullish target with Oil.

Disclaimer:

“The content provided in this material and/or any other material that this content is referred to, is for information purposes only and shall not be considered as a recommendation and/or investment advice and/or investment research and/or suggestions for performing any actions with financial products or instruments, or to participate in any particular trading strategy. This material does not take into account reader's financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Alex Katsaros, no reproduction or redistribution of the information provided herein is permitted. All charts displayed are screenshots from "cTrader" trading platform, owned by Spotware Systems Ltd"