How China And Canada Factor Into The Oil Equation
While it may still
be a bit early to declare an end to the recent trading range,
Tuesday afternoon’s run to the upside (stopped at 50 day EMA) may be the move
the market needed to get a little volatility back into the fold.Â
I do not have a lot of insight on yesterday’s
action since I was not able to trade due to illness, so today’s piece will
simply offer some insights from a slightly longer-term standpoint and offer some
technical levels that may be key in today’s session.
S&P’s:
1112.50 (50 day EMA)
1103
1120 (key resistance)
1098
The Gold Stocks have managed to quietly sneak
higher in the last several sessions and also ran into their 50 day EMA
yesterday. The move coincided with the recent deterioration in the Dollar (DXC)
and the overall buzz on inflation. While the gold stocks were fantastic traders
later in 2003 and for a few weeks early in 2004, they have since become very
erratic and challenging. So while using them for HVT is not advisable, they may
be coming into their own again as worthy investments.
I was reading a report yesterday afternoon that
was discussing the prospect for higher oil prices. It was not your typical
research report where it simply draws a conclusion without empirical evidence.Â
Much of the reports conclusions, higher oil prices, were attributed to China. I
had written a report to subscribers of my
FX Alert Service which basically stated that the prospects of a
dramatic slow-down or hard landing in China was overblown, and offered some
ideas on how to play the FX market as a result.Â
If in fact that conclusion is correct, China’s
ever increasing demand for oil will only put further pressure on the price of
oil, geo-political tensions aside.
With Canada having the second largest oil
reserves in the world (if oil sands are included) it may be time to consider
some of the oil sands plays as interesting long-term investments. When oil is
around $20/barrel the process to extract the oil from the oil sands is not
feasible, at $40/barrel it makes much more economic sense. Consider looking at
these companies.
Suncor Energy
(SU)
Energy Select Sector
(XLE)
If you want to read a great overview on Canada’s
Oil Sands, see if you can get hold of a copy of Marc Faber’s January 2004
Newsletter for a more detailed analysis. (www.gloomdoomboom.com)
Tomorrow’s article will revert back to the
standard format as I will have had a chance to trade and be in a better position
to offer insights for the day ahead. Nonetheless, I trust that you found
today’s comments helpful.
As always, feel free to send me your comments and
questions.