Crude oil prices on the NYMEX closed lower and beneath the $70.00 level at $69.16 for the second straight week since peaking at $73.23 on June 11 amid a technical top at the top of the 3-month uptrend channel, though the action was mixed due to fundamental and geoplotical concerns. Selling was intense to begin the week, brought on by a break of the 10-week uptrend and expiration of the July contract with a low for the week posted at $66.37. Oil surged mid-week to $71.29 as a weaker dollar spurred buying along draws in stockpiles and unrest in Iran and Nigeria supporting rally efforts. However, in the end oil dropped to settle at $69.16 as the Commerce Dept. spooked buyers when it reported a 6.9% increase in the U.S. savings rate, indicating demand is likely to remain under pressure throughout 2009.
The recent pause in the crude oil rally, other than for technical reasons, came on as the fundamental reality began to kick in. As we’ve been discussing and will continue to discuss, the main driver behind the rally has been a percieved economic recovery, not an actual recovery. Though crude inventories have fallen in six of the past seven weeks, supplies remain high at 354 million barrels while fuel consumption fell 5.5% to 17.9 million barrela last week. Surplus inventories and an increase in the U.S. savings rate indicate the economy continues to contract rather than recover, not a very supportive scenario for $70.00 oil. Nevertheless, this is a news driven market and the Bulls are now focusing on the weaker dollar and geo-political tensions to help their cause. The conflict in Nigeria presents a risk to supply as militants continue to attack oil pipelines therby potentially adding a risk premium to prices. An escalation in violence by Nigerian militants may be enough to support the Bulls in the near term. Ultimately, supply and demand will win; it’s just a matter of when.
Monthly Technical Outlook
On Wednesday, a new month begins therefore shifting our key monthly trendlines. The current 3-month uptrend becomes a 4-month uptrend (4 M ^ TL CHNL-Chartwhiz Symbology) crossing at $63.80 while the new 6-month uptrend (6 M ^ TL CHNL) crosses at $59.30. Both are likely objectives in the coming weeks for the Bears if corrective selling continues this week and into July. The monthly pattern for 2009 is still Bullish, so anticipate some buying against the 4 M ^ TL CHNL and strong buying against the 6 M ^ TL CHNL if reached. If the 6 M ^ TL CHNL is violated, we could be looking at a continuance of the long term Bear trend from record levels at $147.27 set nearly one year ago with an objective at the 2009 breakout point at $54.65.
Weekly Technical Outlook
The market is in a consolidation/corrective pattern within the 2009 Bull trend and slightly bearish (barring geo-political events) to start the week off as both short term weekly and daily trends are sloping downward. We’ll begin by looking for any rejection against initial weekly Resistance at $69.85 to $70.30 and again at $71.00 to $71.75 as an indication selling will continue targeting initial weekly Support at $68.00 to 67.00 with the 9 W ^ TL crossing at the lower end of that range. The Bulls built a minor base here last week, therefore if taken out should provide conviction for sellers aiming for the next key weekly support target range at $64.95, the June Spot Low to the 4 M ^ TL CHNL for July at $63.80. Shorts should consider booking profits against $64.95 to 63.80. A break or a close for the week below $63.80 will open the flood gates for a flush to the key psycholigical level at $60.00 to the 6 M ^ TL CHNL at $59.30.
On the upside, if the Bulls continue to defend the $68.00 to 67.00 range this week, expect a solid rebound back into the weekly Resistance zones within the $69.85 to 71.75 range. A key bullish indicator this week will be a violation of the 4 W v TL CHNL at $71.75 with a high probability of retesting the June Spot High at $73.23. Trade above $73.23 is likely to send the market soaring to the $75.00 OPEC target price up to $76.30, the 38% Fibonacci Retracement level of the downtrend from record highs. With the Fibonacci Retracement a widely watched technical tool, longs will want to take profits off the table between $75.00 to 76.30. Producing settlements above $76.00 will bring $80.00 crude oil into view while targeting the tops of the monthly uptrend channels within the $78.50 to 80.00 range. Otherwise, if $64.95-63.80 weekly Support is challenged and holds, a buy signal will be generated for developing rallies in the weeks ahead.
