Resistance Kicks in Once Crude Touches US$ 100/barrel - Chart Of The Day 5 June 2018 - Equitymaster

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Resistance Kicks in Once Crude Touches US$ 100/barrel
Jun 5, 2018

Whenever oil prices have surpassed US$ 100/barrel, they didn't stay there for very long.

In technical term, it is sort of 'resistance level'.

Today's chart illustrates the same.

Oil prices have collapsed thrice because of demand destruction: in 1979, 2008, and 2014.

In 1979, the trigger for oil price increase was the Iranian Revolution and the Iran-Iraq war. Due to this, oil prices rose from US$ 50/barrel to above US$ 100/barrel between January 1979 and April 1981.

Then, new production from the North Sea, Mexico, Alaska, and Siberia flooded the market. By March 1986, prices had fallen to US$ 27/barrel.

In 2008, when oil touched US$ 150/barrel, it was quickly followed by the financial crisis and recession.

Then, between 2011 and 2014, when oil was above of US$ 100/barrel, several years of triple-digit oil prices led to a near doubling of shale production in the US, a volume that helped trigger the crash in 2014.

As per the media reports, even Saudi officials think US$ 60 is a reasonable price for oil in the long term.

A spike in oil prices could result in history repeating itself.

Tanushree's latest StockSelect recommendation is based on this rationale. As per the company's management, if crude sustains at US$ 60-US$ 65 levels, this will help to revive one of the company's primary segments which contributes around 40% of the revenue.

Data Source: US Energy Information Administration

This Chart Of The Day was published in The 5 Minute WrapUp - This is Why Crude Oil Prices Are Destined to Fall Back to US$ 60

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