The Bulls and Bears battled it out last week with Oil prices whipsawing back and forth within the recent $80.00 to $83.00 congestion range as they remained sensitive to the dollar fluctuations off of Greece’s debt woes while attempting to trail the equities markets higher.
The Bulls took advantage of dips to $78.57 early in the week and rallied the market to $82.20 by Tuesday with help from a better-than-expected home sales report and short covering/position squaring as the April contract expired on Monday.
The weekly inventory stats cut short rally efforts at the $82.00 level along with a strengthening greenback as Portugal’s downgrade renewed concerns of a spreading crisis to other European nations. A lower revision of the GDP spurred concerns over demand tipping the scale in favor of the Bears for a drop back below $80.00 on Friday.
At the end of the volatile week, the Bears came out slightly ahead with the market losing 68 cents, or 1.2% for the week to close at $80.00 on the nose.
Last week’s inventory report showed a larger-than-forecast increase in U.S. supplies with crude oil stockpiles rising 7.25 million barrels to 351.3 million. Analysts were expecting an increase of 1.65 million barrels. Imports were up 12 percent to 9.4 million barrels per day last week. The large inventory gain definitely weighed on crude prices, but there were bullish indications in the report which likely kept the market from plunging last week.
Both gasoline and distillates declined larger than anticipated by 2.72 and 2.42 million barrels respectively. Gasoline consumption rose 1.2 percent averaging 8.95 million barrels per day while total U.S. fuel demand in the last four weeks gained 3.6 percent from a year earlier. Refineries operated at 81.1 percent of capacity, up 0.6 percentage point from the prior week.
The Bulls have been resilient in keeping prices afloat above $80.00 playing off the dollar and equities markets, yet the fundamentals and demand concerns along with a lack of any new bullish news show a reluctancy to follow through above the $82.00 to $83.00 range.
We’re anticipating a volatile week with a decent move one way or the other as the first quarter of 2010 comes to an end on Wednesday and the second quarter begins on Thursday while both sides await a catalyst which could very well come from this week’s inventory report released on the last day of Q1. Imports and refinery rates will be closely watched this week as higher imports of lower refinery utilization will place weight on oil and vice-versa.
Technical Outlook:
The first quarter and March end this week which means we have some new key trendlines coming into play. The new 6-quarter uptrend line pinned last week’s low as it crosses at $78.50. The new 15-month uptrend line will move to $75.50 and becomes a key downside target this week. The weekly chart depicts a choppy 3-week downtrend with the trend line crossing at $81.30 while still maintaining a longer term 9-week uptrend line crossing at $79.65 drawn from this year’s $69.50 low. To sum it up, chart patterns are indicating prices are top heavy in the short term though key long term trends could keep the market from falling out of bed.
Upside:
With the Bears unable to settle last week’s action below $80.00 and with key trend line and March low Support below at $79.65 to $78.00, Bulls can look for buying opportunities on initial dips into that range. Trade that tests and holds $79.65 to $78.00 or if settlements are contained above $80.00, look for the market to challenge the initial weekly Resistance range from the 3-week downtrend line at $81.30 to last week’s high at $82.20. Longs should use a scale out strategy for taking profits within the $81.30 to $82.20 range. Trade or settlements above the $82.00 level should induce a new round of buying which will target the recent double top at $83.00 to $83.15 with the potential for a Bull spike to the yearly high at $83.95. Take additional profits within the $83.00 to $84.00 range. Trade surpassing the $84.00 level indicates the Bulls are back in full force and targeting the $85.00 psychological level up to the May contract’s 2010 high at $85.43. Rallies that fade within the $83.00 to $84.00 range alerts for a cover and reverse play for a potential liquidation flush to follow.
Downside:
The downside is equally in play this week with solid shorting opportunities against $81.30 to $82.20 initial weekly Resistance. Basically, failures to trade and close above $82.00 renews recent bearish activity with an initial objective to slide back to $80.00. Trade or settlements below $80.00 will prompt solid testing of the $79.65 to $78.800 support range containing the key 9-week and 6-quarter up-trend lines and the 50 DMA. Shorts should take a scale out strategy the 1st time into the range and can re-short on rebounds that to fail to regain the $80.00 level. The major breakdown this week on a quarterly, monthly, and weekly chart basis is triggered below the March low at $78.00 intially targeting $77.00 on a quick spike down and, as mentioned above, will overall aim for the new 15-month uptrend line at $75.50 to $75.00. All shorts should cover against $75.50 to $75.00 and can also reverse the first time down for a solid reversal short squeeze play back to $78.00 or higher.
