Crude oil posted gains for the fifth straight week last week as prices rose to fresh spot highs for 2009 at 5225. The week commenced leaning toward the bearish side as OPEC announced at its March 15 meeting it would leave production unchanged as its prior record cuts have been making an impact on supplies. However, technical support at a 20-day uptrend line reversed momentum to the Bulls and it was off to the races thereafter. Weakness in the dollar and the Fed’s plan to purchase $1 trillion in treasuries provided the fundamental boost to drive prices through the prior 2009 high at 5047. Crude oil prices for the week gained $4.81, or 10.4% to close at 5106 for the April contract which expired on Friday. The May contract settled at 5207 after reaching a high for the week at 5298.
In the coming weeks, the fundamental focus will be on the continuing battle between current OPEC production output and the global recession. The previous cuts have made a noticeable impact on the market as prices have risen from the high 30’s earlier this month to the low 50’s as we near the end of the month. However, with OPEC shy of about 800k bpd on the previous cuts, the cartel will need full compliance from its members to adhere to quotas to keep prices rising as the IEA lowered its 2009 global oil demand forecast for a seventh straight month. US continuing unemployment claims jumped to their highest level since records began in 1967 providing an additional obstacle for higher prices as it indicates further deterioration of the US labor market may be seen.
Fundamentals aside, we are in a technical 6-week uptrend with a “buy dips” bias to start the week off as the May contract advanced above its 100 day moving average at 5130. The initial weekly Support range will be seen at the prior 2009 high at 5047 down to 4860. Maintaining prices above 5047-4860 indicates strength and will support continued advances with the next key objective at weekly Resistance from 5460-5600, a range consisting of the Dec. 08 high, the top of the 6 W ^ TL CHNL, and a prior double top. Bulls should look to lock in profits within the 5460-5600 range as short sellers will be looking for the current rally to fade. Producing multiple settlements above 5600 throughout the week will set the stage for an extension to the 6000 mark.
If prices fail to maintain the 5047-4860 Support range, selling is expected to come in targeting the next weekly Support range at 4700-4600 with the bottom of the 6 W ^ TL CHNL crossing at 4625. With the current tone bullish, buying opportunities will be present in this range. Producing closes below 4600 alerts for a reverse in the weekly uptrend triggering additional sell offs aiming for the 4300-4200 range and potentially to 4000 on extensions.
