After 3-weeks of indecisive range bound trading within the $80.00 to $83.00 range, the Bulls took charge last week and rallied crude oil prices to new 2010 highs above the $85.00 benchmark for the first time since October 2008 while posting gains for a fifth consecutive quarter. Crude oil for May delivery settled the shortened week on Thursday at $84.87 with a week-on-week gain of $4.87.
The failure to settle prices below $80.00 in the prior week was a precursor to what followed with a bearish inventory report doing little to stop the Bulls. Positive economic growth coupled with a weaker dollar provided the legs behind the breakout rally. Reports last week showed manufacturing expanding in the U.S., China and Europe which fueled optimism that demand will increase this year.
Other economic reports showed home prices increasing in 20 U.S. cities while consumer confidence climbed as well. The International Monetary Fund and the European Union pledged to help finance Greec’s debt which weakened the dollar and bolstered the appeal for oil.
Last week’s inventory report reiterated the bearish fundamentals as crude oil stocks increased greater-than-expected by 2.93 million barrels to 354.2 million marking the ninth straigth gain. Gasoline stockpiles gained 313,000 barrels vs. forecasts for a decline of 1.85 million barrels. Supplies of distillates dropped 1.085 million barrels, slightly less than the 1.3 million draw expected.
Another surge was seen on Monday as signs of accelerated economic growth continue to outweigh the fundamentals of a well supplied market. Prices nearly reached $87.00 per barrel after U.S. payrolls increased 162,000 in March. 48,000 were temporary Census workers hired by the government.
Now that we’ve surpassed the $85.00 benchmark price, the market will be eyeing the $90.00 level in the coming days and weeks with investors focused on any reports that scream economic recovery. This week’s inventory report will create gyrations, but is not expected to do any significant damage to Bullish efforts.
Technical Outlook:
Last week’s technical price action ripped higher off of the 10-week uptrend line with the weekly settlement well above the prior 2010 high at $83.95 and close enough to $85.00 to spur additional buying into Monday’s session setting a bullish tone for the week.
The technical trend is very bullish after Monday’s session with trade in an outside week pattern against Support at $85.50 to last week’s close at $84.87. Overall, maintaining trade above this range will support continued testing of $87.00 throughout the week. If we do dip below $84.87, buyers should wait to buy into the secondary weekly Support range against the prior 2010 high at $83.95 to $83.00. Rebounds off of $83.95 to $83.00 are expected to return to the $85.00 to $87.00 range.
Multiple settlements above $87.00 will muster strength to target the top of the current 10-week uptrend channel at $89.15 up to the next crucial objective at $90.00. The $89.15 to $90.00 range appears to be a solid range for Longs to begin scaling out of positions as the upper end of this range at $89.85 to $90.00 respresents a 50% retracement of the major 2008 bear market as well as the 4th Quarter breakdown point in 2008 which sent prices tumbling to the $32.50 area. In addition, longs can reverse to the short side at $89.15 to $90.00 and look to ride a wave of profit taking back to $87.00 to $85.00.
On the downside, sellers can cautiously short any signs of a struggle to trade above $87.00 and look to scale out inside the $86.00 to $85.00 range. Shorts can also trail Stops for a potential break below last week’s $84.87 settlement and cover all positions on a corrective drive into the $83.95 to $83.00 secondary Support target range as this was the top of the prior congestion range. Settlements below $83.00 will be viewed as bearish on the market and target $82.00 to the 10-week uptrend line crossing at $81.15 at a minimum down with the potential for a flush back to the key $80.00 mark.
