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Oil Breaks Out Higher

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The $70 area proved to be a significant hurdle for Brent Crude oil over the past two years. However, in September 2021, it was decisively overcome, as shown in the chart below. Surpassing the $70/$72 resistance level transformed it into a support zone, propelling oil to reach a high of $139 in March 2022.

After reaching its peak, oil experienced a decline back to $70, the previous resistance level. In my July 12 column, I mentioned that “Oil Is Bottoming Out—Finally.” With three tests of the $70 area and higher lows, Brent Crude managed to break its downtrend three weeks ago. Additionally, it surpassed its 11-week moving average, indicating positive momentum.

I previously stated that a weekly close above $80 would indicate a bullish trend. If Brent Crude surpasses $89 on a weekly close, it would signal an exit from its year-to-date trading range and suggest potential price targets of $100-$110.

The Resurgence of Energy Stocks

The chart below provides insight into why I have recommended certain energy stocks to my clients. The S&P 500 Equal Weight Energy index is on the verge of breaking out from a five-year base compared to the S&P 500 Equal Weight index. A breakout to the upside would indicate a prolonged period of outperformance for energy stocks compared to the broader market.

If Brent Crude achieves a weekly close above $89, it would further support the idea of oil prices breaking out from their year-to-date price range in the coming weeks. In light of their bullish price action both in absolute terms and relative to other sectors, energy stocks are anticipating this upward movement.

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