Crude oil prices posted new 6-week highs at $80.51 last Monday fueled by the lingering strike at Total but followed with sideways to lower corrective congestion on economic concerns. Poor consumer confidence, an unexpected rise in U.S. jobless claims, a drop in durable goods orders, and end-of-month position squaring capped advances for the month of February and sparked profit taking throughout the week. Prices rebounded back to $80.00 late Thursday and into Friday on a positive 4th quarter GDP number and after holding solid technical support in the $78.00 to 77.00 range. Crude oil for April delivery settled at $79.66 gaining 9.3 percent on the month.
In its weekly energy report, the DOE reported crude stockpiles rose 3 million barrels versus expectations of a 1.9 million increase. The larger-than-expected increase was offset by the gasoline data as supplies fell 900,000 barrels, contrary to expectations for a rise of 500,000 barrles while gasoline demand rose 6.4 percent from the prior week to 9.06 million barrels per day. The refinery utilization rate rose to 81.2% from 79.8%, the highest level since the week ended Jan. 8. Distillates fell 600,000 barrels, less than forecasts of a 1.2 million drop. Total stocks however, rose 1.4 million barrels higher than the prior week to 1.046 billion excluding the SPR.
The market is once again focusing on positive news and signs of an economic recovery spurring future demand for oil. Overall supplies of oil are still high, however, the recent uptick in gasoline demand hints for rising prices in the near term. From a fundamental perspective, if this week’s DOE report shows gasoline demand trending higher, the price of oil will work its way back to current 2010 highs at $83.95 up to 85.00 by the week’s end. If last week’s data was just a blip on the radar, prices will be vulnerable to sideways choppiness to lower corrective patterns.
Technical Outlook:
Last week’s action ran into resistance at the $80.00 to 81.00 range and ultimately dropped to 77.00 but roared back to $80.00 off of a crucial Support base. Both the 3 and 5-quarter bull trend lines in the $78.00-77.00 range along with the 3-week uptrend line (now 4-week) halted selling efforts and provided a base for buyers to initiate new long positions, thus setting the stage for a Bull bias this week. In addition, the new monthly trend lines are bullish with a broken 3-month downtrend line adding support at $77.00 within the overall longer term 14-month Bull channel.
Off the starting gates we’ll look for the 4-week uptrend line crossing at last week’s Settlement and the weekly Pivot at $79.66 to 79.00 to provide initial Support this week. Maintaining this range will encourage follow through buying with a highly probable chance for a breakout above $81.00 targeting the 82.00 to 83.00 range next. Multiple closes above $80.00 will pave the way for a solid Bull run aiming at the spot 2010 high at $83.95 up to the April contract’s 2010 high at 85.00 over the course of the week. If prices take out $85.00, we’ll be looking at the 50% Fibonacci Retracement of the 2008 bear market at $90.00 as an attainable objective this month. In the event $79.00 is violated, buyers should stand aside and look to re-enter the market in the key 78.00 to 77.00 Support range using a suggested Stop below the 20 DMA and Monthly Pivot at 76.50 and an objective at 80.00 to 81.00 and higher.
For the sellers this week, struggles in the $80.00 to 81.00 weekly Resistance range offers shorting opportunities with a suggested Stop above the 81.00 area and an initial target range at $79.66 to 79.00. Trade below $79.00 provides conviction for short positions with a suggested exit strategy placed at the 78.00 to 77.00 Support target range. Trade and settlements below $77.00 are bearish on prices and should trigger the next leg down to 75.50 to a 5-week uptrend line at 74.50. Overall, prices remaining below $77.00 over the course of the week will be vulnerable to a liquidation flush bringing the 14-month uptrend line at $72.50 within reach.
