Oil prices snapped a 4-week losing streak last week on a slew of bullish news across the board along with technical short covering to close with the first weekly gain in 2010. Oil prices have fallen since posting a high at $83.95 to start the new decade off to a low at $69.50 in January before staging a retracement last week to the $75.00 area. Crude oil prices settled at $74.13 on Friday gaining $2.94 for the week, or 4%.
The winter weather got the ball rolling last week for the Bulls as the U.S. mid-Atlantic region braced for another blizzard. The momentum was supported throughout the week as it became apparent the European Union would assist Greece with its debt issues, thus sending the USD lower against the Euro.
In addition, the IEA increased its forecast for global demand by 170,000 barrels per day higher than previously expected while geo-political concerns arose as the U.S. froze assets of four companies connected with Iran.
Prices retreated slightly on Friday as China, the world’s fastest growing energy consuming country, took steps to cool its expanding economy. In its second such move this year, the People’s Bank of China said it will raise the ratio of reserves for banks by 0.5 of a percentage point.
Also capping gains on Friday was the weekly inventory stats which were delayed due to the severe winter weather conditions that shut down government offices in Washington, D.C. The report showed a larger-than-expected increase in both crude and gasoline inventories of 2.42 million barrels and 2.3 million barrels respectively. Distillate stocks fell 356,000 barrels, much less than the 1.75 million forecast. Refinery runs rose 1.4% to 79.1% of capacity as a result of the recent winter storms.
Technical Recap
The Bull Camp controlled the action last week beginning with a boost off of the 200-day moving average followed by reinforced settlements above the crucial $72.50 benchmark area. Prices trended higher for the week through Thursday to $75.70 before pulling back on Friday on a round of profit taking ahead of the 50 and 100-day moving averages. The market closed firm on the week just above the 7-week dowtrend channel at $74.00 level with a minor uptrend potentially developing early this week.
Still, maintaining settlements below the broken key longer term Quarterly trend lines at the $77.00 to 78.00 range leaves the market vulnerable to renewed selling. With options expiration on Wednesday, we anticipate rallies early this week, and then begin fade against $78.00 to 80.00 leading to a turnover later in the week.
Technical Outlook
Upside:
The market reversed the 7-week downtrend to start the week off rallying off the $74.00 level on Tuesday. Maintaining settlements above $74.00 to 75.00 supports advances this week targeting the key broken Quarterly trends in the $77.00 to 78.00 range. Trade or settlements above $78.00 brings the $80.00 psychological mark easily in range for the week. Any settlements above $80.00 will provide solid Bullish reinforcement with the potential to propel the market back to the Jan 2010 highs at $84.00. If momentum fades out in the $77.00-78.00 range, longs should cover all positions.
Downside:
Failing rallies at the $77.00-78.00 range generates a sell signal for an initial drive back to the broken 7-week downtrend at $74.00. Settlements below $74.00 reinforces short term weakness as it puts prices back the weekly downtrend channel while violating the minor daily uptrend. The objective below $74.00 is placed at the key $72.50-71.75 Support range where shorts should initially scale back positions. Trade and settlements below $72.50-71.75 will rekindle sustainable Bear forces triggering sell offs targeting the current 2010 lows at $70.00 to 69.50 while bringing the next major objective in range at $68.50-68.00. A settlement below $70.00 on the week, or trade that takes out the $68.00 level, lines up for $65.00 oil in the coming weeks.
