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Is Crude Oil Steaming Toward Triple Digits?

Barchart - Fri Sep 8, 2023

In an August 4 Barchart article on crude oil, I wrote, “Crude oil is a highly political commodity that continues to power the world. The geopolitical landscape continues to support higher highs in oil prices, with the U.S. SPR’s low level providing a potential floor for the coming months.

In that piece, I highlighted the U.S. Strategic Petroleum Reserve’s low level, a missed opportunity to replace SPR barrels when oil prices fell to the U.S. administration’s $67 to $72 range, and the rallies in WTI and Brent futures since the early May 2023 lows. 

On August 4, active month NYMEX WTI futures were at $82.54 per barrel, with nearby ICE Brent futures at the $86.08 level. Over the past weeks, oil prices did not explode higher but continue climbing towards the $100 per barrel critical psychological level. 

WTI rallied to new 2023 highs

Crude oil prices have been rallying since early May when the continuous NYMEX futures contract found a bottom at $63.57 per barrel. 

The chart highlights the 37.5% rally from the May low to $87.39 in early September. The energy commodity rose to a new 2023 high and the highest price since November 2022, the last time NYMEX crude oil futures eclipsed the $90 per barrel level.  

Brent futures trade over $90 per barrel for the first time in 2023

Brent crude oil futures reflect the pricing benchmark for two-thirds of the world’s petroleum. OPEC+ controls the Brent pricing as production comes from Europe, Russia, Africa, and the Middle East. The continuous ICE Brent futures contract reached a $68.20 bottom in May 2023. 

The chart illustrates the 32.9% rally to $90.61 per barrel in early September, the highest price since November 2022.  Nearby November Brent crude oil futures were above the $90 level on September 8, and NYMEX futures were not far below the recent high. 

The XLE is higher in 2023 after a correction 

The S&P 500 Energy Sector SPDR (XLE) owns shares in the leading U.S. oil and oil-related companies, with a nearly 40% exposure to Exxon Mobile (XOM) and Chevron (CVX). Rising oil prices translate to increasing profits for the oil-related sector. 

The XLE chart shows the ETF closed 2022 at $87.47 per share. After falling to a $75.36 low in March 2023, the XLE at $92.63 on September 8 was 5.9% higher in 2023. While the XLE has underperformed the overall stock market this year, it is close to the November 2022 $94.71 high, the highest level since 2014. The bullish trend in XLE, which began at the March 2020 pandemic-inspired low, remains intact in September 2023, with further gains likely. 

The OIH is in a bullish trend

The VanEck Oil Services ETF (OIH) owns shares of the leading oil and gas services companies, including an almost 40% exposure to Schlumberger (SLB), Halliburton (HAL), and Baker Hughes (BKR). 

As the chart highlights, OIH has appreciated 17.1% from $304.05 at the end of 2022 to $355.99 on September 8. OIH has made higher lows and higher highs since the March 2020 low. 

Increasing oil prices fuel profits for XLE and OIH, and the rally in the shares signifies the ongoing bullish market sentiment. 

Traditional energy remains bullish- Expect higher highs

While addressing climate change in the U.S. and Europe supports alternative and renewable fuels and inhibits hydrocarbons, crude oil remains the energy commodity that powers the world. China and India are the most populous countries and continue to consume increasing amounts of fossil fuels. 

U.S. energy policy prevents the level of production increases necessary to stop OPEC+ from controlling prices. Saudi Arabia and Russia are the cartel’s leading decision markers. Saudi Arabia requires a minimum $80 per barrel oil price to balance its domestic budget. Russia depends on oil revenues to fund the war effort in Ukraine. Moreover, crude oil has become one of Russia’s economic weapons against countries supporting Ukraine, including the United States. 

The trend is always your best friend in markets across all asset classes. As of September 8, 2023, the trend in oil has been higher since May 2023, and the pattern of higher highs appears likely to continue. Crude oil could be heading for the $100 level or higher over the coming weeks and months. 



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On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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