Well Oiled - Part Two

Following our update on the Oil price last week we thought it timely to revisit the global oil and gas exploration and production company; Karoon Energy Ltd (ASX: KAR $1.625). The company is headquartered in Melbourne Australia with projects in Australia, Peru and Brazil. Karoon’s Australian permit is situated in the Carnarvon Basin, offshore Western Australia and is jointly owned by its operator, Santos. The company has a 40% operational interest in two Blocks in the offshore Tumbes Basin in Peru with the majority of Karoon’s assets located in the southern Santos Basin offshore Brazil and include the Neon and Goiá oil discoveries with the soon to be added Baúna production asset.

The share price for Karoon closely follows the West Texas International oil price and as we have suggested the oil price is approaching a critical juncture of resistance in the US$ 75-80 range. On 5 and 8 October the price hit $79.17 and $79.50 respectively and we find that Karoon too is experiencing a zone of resistance in the $1.70-80 area. On 6 October the price for Karoon nudged the return line of its twelve-month upward trend channel at $1.695 and in line with the oil price has halted and been rebuffed for the time being. The combination of the return line and overbought and divergent momentum indicates that a breakaway through its barriers maybe delayed. 

The price found support last week around $1.56-58 and then more importantly over the very near-term support lies at $1.50. A drop below this level would suggest that the pullback could deepen towards $1.43 and possibly as low as $1.30. Such an action would provide trading and or buying opportunities.

Once the $1.70-80 barrier is cleared the stock would gain the potential towards $2.00 and then $2.40. Both of these levels may see price pauses within the upward trend. At this stage the critical risk level within the pullback phase is $1.20 with a drop below $1.15 severing the current upswing. Such an action seems unlikely at this time.