Amid a spate of widely known geopolitical risks, oil and gas stocks have ironically begun to retreat from their recent highs. The reason for this retrenchment might well be a result of a downward revision to global growth estimates announced by the World Bank in June. Instead of their previously forecast rise of 3.2% for 2014, the World Bank now expects global growth to expand by only 2.8%. Last week, a series of weaker-than-expected European economic reports as well as a number of weaker-than-expected retail (consumer) reports in the United States underscored those diminished predictions.
Nevertheless, global demand for oil is expected to rise in 2015 if economic growth in both the United States and China continues to accelerate as expected by a number of economists. If so, it is worth pointing out that a buying opportunity in large global integrated oil and gas companies may soon present itself. The daily bar chart of the NYSE Arca Oil & Gas Index (XOI) suggests that a test of the 1,600 area could occur since two key trend lines will likely converge near that support target soon. Oversold technical conditions are already in place, which hints that this buying opportunity may present itself over the next few weeks or so.
The XOI index is comprised of 12 large global integrated oil and gas companies that include: Anadarko Petroleum (APC), BP plc (BP), ConocoPhillips (COP), Chevron (CVX), Hess Corp. (HES), Marathon Oil (MRO), Occidental Petroleum (OXY), Petroleo Brasileiro (PBR), Phillips 66 (PSX), Total (TOT), Valero Energy Corp. (VLO) and Exxon Mobil (XOM). Of this group, a number of them have recently broken above key resistance levels and now appear to be consolidating their gains (such as APC, MRO, OXY, and PBR). Others are hovering just below key resistance levels (such as BP, COP, CVX and XOM) with PSX and VLO nearing interesting levels of support.
In any event, a pullback toward the 1,600 area on the XOI should determine whether it is, in fact, key intermediate-term support or not. If it fails to hold as support, a more pronounced move to the downside could emerge instead.