The Price of Oil

As the price of oil falls to a level not seen since 2012, it's easy to think that it hasn't found the bottom and the price of oil is going to fall forever. When investors start to think that way, it's important to look at a long range chart and see today's price in respect to previous prices. Only then can an investor put things in perspective. 

5 Year Weekly Price Chart of Crude Oil

Looking at the chart above it looks like there's support for the price of Crude Oil in the area of $80/barrel. In fact oil bounced of this area in both 2011 and 2012 making a bounce here a triple bottom. Technically this is a triple confirmation that this is the bottom of the price cycle. It should also be noted that as the price of oil rose in 2009 and 2010 it met resistance at the $80 level. Once it broke through in late 2010 that resistance became support just one year later. This is a classic chart for demonstrating resistance and support levels.

As most investors have seen over the last few months, companies whose market capitalization is based on owning crude oil in the ground have had their stock prices reduced (exploration and production oil companies) while those companies who buy oil to manufacture into another product have had their costs reduced and their market capitalization has increased (downstream oil refineries). Outside the oil industry, the consumer is seeing a reduced cost of heating oil and gasoline so they're going to have more money in their pocket to spend in other areas of the economy. One such area is Consumer Goods. And with Christmas just around the corner we could see increased spending for consumables and durable goods over the next two months. 

If oil goes back up, the reverse will occur. And this is really not an if. Oil will eventually go back up and the oil companies will once again rise in price. The only answer is when. If $80 is going to be the bottom, if support has already started to come into the market, then the integrated oil companies as well as the upstream oil companies will benefit. 

Now could be just the right time to start, or add to your position, in the exploration and production oil industry.  

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Additional Articles:

"Re-Ordering those Stocks of Interest" dated 12 October 2014
"Chevron, the Dollar and the Price of Oil" dated 7 October 2014
"Chevron - When High is Too High" dated 25 June 2014
"Chevron and ExxonMobil" dated 30 May 2014

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