Crude oil prices fell for a third week in a row last week reaching new lows for the year at $72.43 while posting the first monthly loss since July and largest since December 2008. Prices settled at $72.89 for the spot March contract losing 2.4% on the week and 8.3% in January.
After a moderate boost on last Monday, the market trended down for four straight days amid dollar strength, weak equities, gains in fuel supplies and against technical resistance at $75.00 to 75.50.
U.S gross domestic product grew 5.7% in the fourth quarter, spurring the dollar rally against the euro which in turn pressured oil prices to its lowest levels last week. The dollar hit 6-month highs as the economy expanded at the fastest pace in 6-years.
In the weekly DOE report, crude inventories unexpectedly fell 3.9 million barrels while analysts expected a drop of 1.5 million barrels. However, the drop in supply was mainly caused by the closing of the Houston Ship Channel, the largest petroleum port in the U.S., rather than demand. The bearish component of the report was the gasoline figures. Gasoline supplies rose to the highest level since March 2008 gaining 1.99 million barrels to 229.4 million. Refinery utilization remained relatively unchanged at 78.5 percent, also bearish as it’s a sign of reduced oil consumption.
Technical Outlook
Oil prices staged a moderate rally to start the new month off after Sunday night’s Globex open formed a double bottom against the new 8-month uptrend line at $72.50. However, the overall technical picture for this week is bearish on trade below $75.50 to 76.50 which consists of the current 5-week downtrend line, the broken 3 and 14-month uptrend lines as well as the 100-day moving average and weekly pivot. Relief rallies this week are expected to target and begin to lose momentum at the $75.50 to 76.50 Resistance zone. Longs should look to scale back positions inside $75.50 to 76.50 or neutralize positions on settlements back below the $74.00 level. Trade above $76.50 stregthens Bull forces and will target the key January breakdown at $77.70 to 78.35 secondary weekly Resistance zone. All longs should exit at this point as the 50% Fibonnacci retracement level coincides with the January breakdown zone. Only a close above $78.00 has the power to propel prices to the 80.00 mark.
For the sellers, good selling opportunities this week are seen in the $75.50 to 76.50 weekly Resistance range as trade stalling here is likely to keep prices under pressure and return to the 74.00 level. Settlements below $74.00 are expected to rekindle the Bear camp for initial drives targeting the 8-month uptrend and 2010 lows at 72.50-72.40 with room down to the new 30-week uptrend line at 71.85. The next major breakdown in the oil market is slated to ignite below $71.85 with a highly probable chance to extend into the $70.00 to 68.00 range.
