Price Target for Crude Oil as 'Big, Beautiful Bill' Drives Energy Changes
Here are two complete trading strategies for the energy markets.
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The price of fuel is always in your face. You can’t drive more than a few miles in any direction without seeing the price of gasoline hovering above a filling station.
Maybe that’s why we Americans are so focused on fuel prices. They’re everywhere we look!
Senate Is Next
On Thursday, the U.S. House of Representatives approved legislation known as the "big, beautiful bill." Within that bill are energy directives that are likely to result in increased production of oil and natural gas, due to leasing activity via the Department of the Interior.
The bill now goes to the Senate, where it is likely to see some modifications. Regardless, supplies of U.S. crude oil and natural gas are likely to increase, placing downward pressure on prices.
A No Brainer? Not So Fast
Under the circumstances, it would seem to be a no-brainer to short crude oil and natural gas. The problem is, it's already widely understood that energy production is about to expand. Therefore, future increases in production should already be reflected in today’s prices.
Perhaps they are, at least to a degree. But while markets can and do reflect future expectations, they are notoriously inefficient.
Crude Oil
According to the continuous contract charts, West Texas Intermediate crude oil has been in a downward trend since mid-January. WTI crude is trading below its 50-day moving average (blue), 200-day moving average (red), and a bearish trend line (black dotted line). The light, sweet crude is down 14.37% year to date.
We'd like to short WTI oil in the vicinity of its trend line. We're projecting that entry to be $65.25 (green) based on the current trajectories of the price and the trend line. Needless to say, we are looking to sell a rally.
Our preliminary target, where we plan to close half the trade, is $61.75 (black). Our stop is located at $67.50 (red).
Our ultimate target will be $58.25 (blue), which is above a major low set earlier this month. We don’t need to break to a new low in order to hit our final target.
Natural Gas
The natural gas continuous contract chart reveals a head-and-shoulders pattern (shaded yellow). We're looking to short natural gas on a bounce to $3.50 (green), with a stop at $3.90 (red).
As with the crude oil setup, we are looking to sell into a rally. We plan to close one-third of the position at each of the three indicated targets (blue), lowering the stop as each target is hit.
At the time of publication, Ponsi had no positions in any securities mentioned.
