Crude Oil: A Test of the Low?

Crude oil prices are testing the low recorded in January. From Chart 1, we can see that WTIC is testing the USD43 level again. A break below this level could lead to further downside for crude oil. Let's not forget that a failure to make a new low could set the stage for a decent rebound for crude oil.


Chart 1: WTIC's daily chart as at Mar 16, 2015  (Source: Stockcharts)

On February 24, I have recommended that we should take some profit on O&G stocks in anticipation of a drop in crude oil prices (here). While some stocks are able to weather the fall in crude oil fairly well...


Chart 2: Muhibah, Uzma & Coastal's daily chart as at Mar 17, 2015_10.30am (Source: ShareInvestor.com) 

Others did not.


Chart 3: UMWOG, ARMADA & SKPetro's daily chart as at Mar 17, 2015_10.30am (Source: ShareInvestor.com)

Over the next few days, we will have a clearer picture of how WTIC & Brent will perform. If they rebound from the current low, then the USD43 mark a strong support for WTIC. O&G stocks should recover along side the recovery in crude oil.

A stock that is inversely correlated to the performance of crude oil is Airasia. In January, Airasia share price rose while crude oil prices dropped. This round, the drop in crude oil failed to give any boost to Airasia share price, which had sliding. The under-performance could be attributed to Airasia reporting a net loss of RMRM429 million for 4Q2014 (mainly due to forex losses in 4Q2014 of RM648 million). If Airasia were to drop to RM2.20, that could be a good entry level to this stock.


Chart 4: Airasia's weekly chart as at Mar 17, 2015_10.30am (Source: ShareInvestor.com) 

Based on the above, we should track crude oil prices closely to gauge when O&G stocks could be a trading BUY again.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, O&G stocks and/or Airasia.