How Important Is The Massive Breakout In Oil?

If you have been watching WTI Oil over the past year, you know that it has been pretty much dead money. It has traded in a pretty tight range and has gone nowhere. However, over the past 1-2 weeks, we have seen a massive breakout occur. Is this threatening to the economy or stock market? Well, a few basic charts should help us answer that question.

The Charts

Below is a monthly chart of WTI Light Crude Oil ($CL_F, $USO). As you see, a massive breakout is occurring (something I noted to watch for earlier this year).

[Side Note: Follow SoberLook for comments on why oil is moving]

WTIbreakoutJuly11

 

 

 

 

 

 

 

 

 

 

 

You would think higher oil prices would hurt the economy and thus the market right? Well, technically, yes. There comes a point where higher oil prices will hurt the economy. But for starters, we have no idea where that point is. Secondly, if you want to gauge oil’s impact on the economy/markets, you should look at Brent Oil.

Brent Oil tracks gasoline (which as I have explained, is a big majority of our energy spending) very closely (see here). And the Brent chart isn’t really looking that threatening right now. It’s just trading in the lower part of the range still.

Brent Oil

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In fact, the WTI-Brent spread has narrowed to its lowest in 31 months (H/T Zerohedge).

WTI-Brent Spread

So what does this mean for gasoline? We are unlikely to see a major spike. We could see the price lift a little, but don’t expect much. In fact, the retail price of gas was just at a multi-month low recently. So don’t expect a major move yet (to either side). We first need to see a breakout from this range that RBOB Gasoline has been trading in. So don’t worry too much over this move in oil.

RBOB

 

Tags: $CL_F $RB_F $NBZ_F $BNO $USO $UCO $SCO $UGA $DTO $OIL

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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