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Can Bullish Oil-Price Trend Support Chinese Oil Stocks?

By

Kim Ming Lam

on

June 3, 2021

U.S. WTI Crude Futures : Rising Trend-line Support

Source: TradingView

Recently, U.S. WTI crude oil futures are choppy between $57 and $68 since February.

The market expects oil demand to recover in view of the good progress in COVID-19 vaccination. Rising inflation expectations in the U.S. also help to push the commodity prices higher.

On the other hand, the inflection of COVID-19 in India remains serious, while the investors are worried that the oil demand decreases in this third-largest oil demand country. In addition, the investors are concerned about the risk of the increasing oil supply as the nuclear talks between the U.S. and Iran have made progress.

However, the technical outlook of U.S. WTI crude futures remains bullish. Oil price is still supported by a bullish trend line drawn from the start of the year.

A further advance toward $68.00 and $72.50 is still likely. Note that a return to the key support at $60.00 should bring about a bearish reversal.

CNOOC (883.HK) : Watch Key Support at HK$8.05

Source: TradingView

Chinese oil giant CNOOC (883.HK) recently announced that gas fields in the South China Sea have been put into production, and it is estimated that the actual daily natural output will reach a peak output of about 41 million cubic feet this year.

Morgan Stanley also estimated that CNOOC's overseas output would increase, and that if vaccine delivery rates continue to rise, oil output in those areas are expected to increase significantly. Once it is in line with the expectation, CNOOC will update the production guidelines for this year.

On a daily chart, although the prices eased after breaking above the declining trend line and running up to HK$9.22, it is still supported by a rising trend line drawn from December 2020. Currently, the prices are trading around both 20-day and 50-day moving average. It is predicted that the prices could rebound after the consolidation.

As long as the key support level at HK$8.05 is not broken, the stock prices could expect to challenge the previous high at HK$9.22 and next resistance level at HK$10.20.

Sinopec (386.HK) : Rebound to HK$4.55 Expected

Source: TradingView

Recently, the Chinese government has levied import environmental pollution tax on some oil products, and the market expected that it would provide a great benefit to China's large domestic petrochemical enterprises, because the competitiveness of smaller oil enterprises will be reduced, especially those enterprises rely on the imported oil products. The oil giant Sinopec (386.HK) should benefit from this import tax.

On a daily chart, the stock prices are in the phase of consolidation after breaking above the falling wedge. In addition, the 20-day moving average is turning flat, while the RSI rebounds without touching the oversold level. It indicates that the correction from March might complete and start the rebound phase.

As long as the stock prices trade above the key support level at HK$3.80, it could expect a bounce to HK$4.33 and HK$4.55 as the upside targets.

The investment ideas presented here are for information only.  They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing. Learn more.

Kim Ming Lam

Head of APAC Research
Ming graduated from Hong Kong University with a Bachelor degree in mechanical engineering. He has been working in the financial services sector for over 10 years. He is currently tasked with providing clients with technical analysis views on forex and Asian stock indexes.
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