Oil bulls claim to have many reasons to remain bullish¹:

• US oil production remains flat and is beginning to decline.
• US drilling rig count has dropped for three months straight.
• Gasoline demand has been revised higher in 20 of the last 24 months.
  • In May, the EIA revised gasoline demand higher by 3.5%, jet fuel by 5.9%, and overall total oil demand by 2.5%.
• Middle East tensions are running high.
• US crude oil inventory is at its lowest level in five years (see chart below)
   

All of these points might make the case for being bullish on the price of oil. The only problem is the technicals look terrible (see chart below). Technically speaking, oil has broken its trendline. In the chart below, you can see oil prices have been on a downtrend since September 2022, but just broke through the trendline this week. For those are familiar with technical analysis, this is not a good thing.

While we believe oil stocks are very cheap from a price/cash-flow metric, we also believe that you cannot ignore the negative technicals that the oil market is experiencing. The market is trying to tell us something, maybe we should listen!

I have also included a report from our CIBC Economics team entitled “That other macro toolkit”.

As always, if you have any questions, please feel free to give us a call at any time.

Have a great weekend.

Milan

¹oilprice.com. (Aug 08, 2024). Reasons to Be Bullish Despite the Recent Oil Price Crash.