News surfaced Tuesday about stress on oil production from the recent temperature drop in the U.S.
Because water is involved in oil production it can freeze equipment, thereby halting the process. Does this mean oil will continue to increase in price from a temporary weather condition?
Possibly, but by looking at the weekly chart of United States Oil Fund (NYSE:USO) we can find an even better reason for higher oil prices to continue going forward.
First off, oil has been beaten down since the beginning of 2020. When traveling was basically cut off from the pandemic, the oil market suffered major losses. Furthermore, supply chain issues make oil production challenging to start back up, especially if oil companies are tight on cash from major yearly losses. Knowing this, we can assume that companies will be careful about how much they add to supply as they now must sell oil for a fraction of the prices seen pre-pandemic. Additionally, the increase in U.S vaccinations fares well for travel, and in turn for oil.
We are not the only ones that expect growth in oil prices. Berkshire Hathaway (NYSE:BRKa) recently took a 4.1-billion-dollar stake in Chevron (NYSE:CVX).
With that said, if oil runs into some roadblocks along the way, watching the transportation sector (IYT) can act as a guide for further strength in the oil sector.
Tuesday, iShares Transportation Average ETF (NYSE:IYT) broke to new highs along with the S&P 500, Nasdaq 100, and Dow Jones.
If the transportation sector stays strong this will further support the oil market recovery through this year.
We see support now in USO at 38.50 with 40 the pivotal area. Resistance is above at 44.00.
- S&P SPY New highs. 385 support
- Russell 2000 IWM 230 resistance
- Dow DIA New highs.312 support area
- NASDAQ QQQ New highs.330 support
- KRE (Regional Banks) 60.00 support
- SMH (Semiconductors) 246 support
- IYT (Transportation) New highs
- IBB (Biotechnology) Broke 168 support. Next main support - 50-DMA at 158
- XRT (Retail) Needs to clear 81.46