Crude oil prices exploded for a second straight week topping the $80.00 mark for the 1st time in 6-weeks with the more active April contract closing at $80.06, up $5.56 on the week. A strong Euro against the Dollar, a boost in equities on higher earnings, and strong manufacturing figures kicked off the rallies as floor trading commenced on Tuesday after the Presidents day holiday. The weekly petroleum stats and the Iranian wild card sustained mid-week momentum while a strike at Total SA refineries in France and a surprise rate increase by the Fed fueled the final boost above the $80.00 level on Friday.
The Department of Energy reported crude supplies rose 3.09 million barrels, gasoline stocks climbed 1.62 million barrels and stocks of distillates fell 2.94 million barrels. The report was bearish at face value, however, a draw of 710,000 barrels at Cushing offset the crude build bringing supplies at the storage facililty to 30.9 million barrels, its lowest level since November. In addition, refineries operated at 79.8 percent of capacity representing a gain of 0.6 percentage point from the prior week while fuel consumption rose 0.2 percent from a year ago to 19 million barrels per day in the four weeks ended Feb 12.
The sentiment has shifted in the market to the upside as recent economic indicators have shown improvement. Furthermore, the Fed’s decision to hike rates for direct loans to banks by a quarter-point to 0.75 percent indicates they think the economy is improving, thus bringing consumer optimism back into play.
Technical Outlook
Last week’s powerful Bull run on short covering leading to the March contract expiration produced a settlement not only above the $80.00 mark, but back above the previously violated key 3 and 5-quarterly uptrend lines in the $78.00 to 77.00 range. In addition, the market is now in a 3-week uptrend channel as well as a 13-day uptrend channel as of Tuesday, all making strong case for the Bulls this week. That’s not to say the market can’t experience a sharp corrective pullback before continuing higher.
Monday’s session ended mixed on choppy trading as the March contract expired, leaving a ‘doji’ star in its path and warning of a potential slide in prices early to mid week. Initial weekly Resistance is placed at $80.25 to 81.00 and if we continue to struggle in that range or begin to trade below $79.50, we anticipate sell offs targeting the key quarterly and weekly Support range at $78.00 to 76.70. Any shorts in the market at this juncture should be scaling out of positions within the $78.00 to 76.70 range. Settlements below $76.70 would violate the 3-week uptrend and open the door to a solid Bear flush into the $75.00 to 72.50 range over the course of the week.
For the buyers this week, if prices do correct as expected, look to scale in to long positions against the quarterly and weekly uptrend support range at $78.00 to 76.70. Trade holding this range is expected to rebound back to the $80.00 to 81.00 range while setting the stage for further advances this week. Maintaining settlements above $80.00, or trade penetrating 81.00 will ignite the next Bull breakout leg targeting 82.00 up to the yearly spot highs at 84.00 and potentially to the April contract’s yearly high at 85.00 on a strong momentum sweep. Most longs should cover in the $82.00 to 84.00 range and/or trail stops for the extended move to 85.00.
