Over the past year, OPEC and Russia have agreed to make small reductions in output levels and will likely continue that trend if oil falls close to or below the $70 level (which is near the breakeven production cost for many new wells). However, the commodity created a strong support level at that $70 level in 2021 and rested very close to it in recent months. It is possible that this small move is a head-fake and that oil will soon return to or below the $70 level. Crude oil remains very cheap compared to its price levels in 2022 but has seen a notable increase in positive volatility since July began. Thus, the macroeconomic outlook is of primary importance for assessing the stock's immediate potential. A New Oil Bull Market Rally?ĬTRA is highly correlated to the price of energy commodities, primarily crude oil, and natural gas. That said, the company is generally on a solid footing to take advantage of improved fundamentals in the oil market. Thus, investors should be cautious due to CTRA's high material reversal risk for the company. The company also generates around half of its typical sales from natural gas, which is cheap today and likely pushing against its long-term breakeven costs.Īccordingly, while Coterra is a powerful way for investors to gain exposure to changes in oil prices, the breakout is not strong enough to definitively say a new bull market is starting. That said, Coterra also faces notable risks today, primarily due to the lower price of oil that may cause its EPS to contract. The stock has risen by around 10% in value over the past three weeks due to the small breakout in crude oil, suggesting strong upside potential in the event of a prolonged oil breakout. CTRA has lost around a third of its value since its 2022 peak due to the sharp contraction in oil prices. In my view, this potential breakout may be a great opportunity for certain oil-producing stocks such as Coterra ( NYSE: CTRA). Further, although the economic slowdown moderates US oil demand, shallow historical oil inventory levels could cause a more asymmetric price rise due to the possibility of shortages. The same is generally true for most oil-producing countries worldwide. Due to low prices and lackluster demand growth, oil producers have aggressively cut their drilling activity, suggesting an impending decline in US oil production. Oil's fundamentals also support this change. From a technical standpoint, this upward move is a potentially bullish indicator, suggesting that crude oil may finally leave the tight trading range it held since the end of 2022.

Over the past three weeks, crude oil has made an eye-catching break higher after three months of consolidation.

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