Should you buy oil given the unprecedented divergence in energy stocks?

Throughout 2022, the energy crisis has shaped the world's economies. After Russia invaded Ukraine, oil prices skyrocketed to over $120/barrel.

That's crazy considering oil traded at -$40/barrel only a couple of years ago. The road from negative prices to over $120 was one of the most spectacular rallies oil markets have ever seen.

But crude oil prices topped this year after the WTI reached $120/barrel. From that moment on, the WTI has lost all of its 2022 gains and now trades almost flat on the year.

However, when looking at the energy sector you can't ignore the unprecedented divergence between oil and energy stocks: While the price of oil has declined in the past 100 trading days, the energy sector has surged.

Historically, such an unprecedented event is typically resolved by a massive oil rally.

So what are the technicals to watch and is it safe to assume an oil rally is coming in 2023?

WTI crude oil caught between resistance and support

In light of the above-mentioned divergence, it would be interesting to see what level would be first broken by the WTI crude oil price – support at $60/barrel or resistance at $120/barrel?

WTI crude oil chart by TradingView

The double top pattern appears to be resolved as the market already traveled the equivalent of its measured move, but more weakness might lie ahead as the double top is a reversal pattern.

However, in the grand scheme of things, the recent price action from the past 100 trading sessions looks like a healthy correction. Therefore, considering the unprecedented divergence from energy stocks, one should not be surprised to see oil prices rally in 2023.

Finally, if a new attempt at $120/barrel is in the cards, central banks will have difficulty fighting inflation as higher oil prices fuel inflation.

Originally published on