The world’s most important commodity is perking up. But...will the gains stick?
This MoneyShow Chart of the Week shows the price of US crude oil futures. You can see a couple of things plainly. We made a primary low near $65 a barrel in September, then had a successful retest with a slightly higher low in early October. More recently, oil has retaken the 50-day moving average with RSI confirming the move.
Source: Yahoo Finance
The trigger? More turmoil in the Middle East. Iran launched a missile barrage at Israel after Israel assassinated the leader of Hezbollah in Lebanon. That attack and other prior ones aimed at Hamas and the Houthi rebels in Yemen have weakened Iran’s “Axis of Resistance” forces all around the region.
Now, Israel is threatening to attack Iran itself in retaliation for the missile strike. The OPEC member country produces 3.2 million barrels per day of oil, roughly 3% of world output. Should Israel attack Iran’s production, processing, or export facilities, it could fuel an even more powerful move higher in oil.
That said, geopolitically driven moves in ANY commodity tend to be shorter-lived than those driven by supply and demand trends. We’ve seen spikes in gold, for instance, when market uncertainty arises – and they haven’t “stuck” for the long term.
For now, I think oil (the commodity) is in the “watch and wait” category. See if the recent gains hold and if the market can build on strength.
But when it comes to energy STOCKS, there’s nothing wrong with doing some bargain hunting. The Energy Select Sector SPDR Fund (XLE) is one of the most well-known vehicles. But yield plays in the sector, including ETFs like the Alerian MLP ETF (AMLP), may be particularly rewarding given recent and future Federal Reserve interest rate cuts.
