Crude oil prices reached 8-week highs at $83.16/barrel last week but the action over the course of the week was sideways and choppy on a basket of mixed factors including a quiet dollar and equities markets. The weekly inventory stats fueled the rise along with forecasts for higher global demand from both OPEC and the EIA and strong imports data from China. However, the consumer sentiment report on Friday did not bode well for oil prices, reversing gains for the week as confidence among the U.S. consumer unexpectedly dropped. The bearish report spurred profit taking on Friday to close the week slightly in the red, down 0.3% at $81.24.
The DOE’s weekly report showed gasoline inventories dropped 2.96 million barrels in the week ended March 5 as demand for the product rose 1.2% to 8.99 million barrels per day. Total fuel consumption rose 0.2% and refinery operating rates fell for the 1st time in 5-weeks to 80.7% of capacity. Crude inventories rose 1.43 million barrels, less than the 2 million expected. Distillates fell 2.22 million barrels vs. an expected 1 million draw.
Trading this week may be volatile based on the FOMC rate decision on Tuesday and as the April options contract expires on Wednesday. Heavy open interest is seen in the $77.00 to 75.00 strike price range for the downside and in the $82.00 to 84.00 strike price range on the upside. That said, prices may be in for more pinball action this week.
OPEC’s meeting in Vienna to discuss production quotas is scheduled for Wednesday as well but likely to have little impact this week. OPEC is expected to leave quotas unchaged at current price levels as projected demand is still lower than current production.
Technical Outlook:
Crude prices maintained a 5-week uptrend channel over the course of last week, however, the action was choppy with trade mostly swinging back and forth in the $83.00 to 80.50 range. The week ended with profit taking on Friday after the Bulls failed to muster enough strength to surpass $83.00. With Friday’s settlement at $81.24, the new 6-week uptrend line at 82.50 was violated off Sunday night’s Globex open. In addition to the trend line break, the daily chart pattern showed a double top at the $83.00 level along with a newly formed Bearish Engulfing Pattern which was confirmed in Monday’s bear drive to $79.13.
For the sellers this week, we’re taking a Bearish stance on the market with selling opportunities against Resistance at the weekly Pivot at $81.50 up to the broken 6-week uptrend line at $82.50. The initial objective on failures against $81.50 to 82.00 is to challenge Support at $80.50 to 80.00. Trade and/or settlements below the $80.00 benchmark alerts for selling forces to kick in with a target Monday’s lows at $79.00 level, but overall we’ll be aiming for $78.00 to 77.00 as a weekly objective. The $78.00 to 77.00 range is comprised of the March low, 100-day moving average, a broken 3-month downtrend line and 5-quarter and 7-week uptrends which will provide a congestive support zone making it an ideal range for shorts to scale out of positions. A weekly settlement below $77.00 will line up the 75.00 to 72.50 range in the weeks ahead.
For the buyers this week, if the $80.50 to 80.00 Support range is well defended by the Bulls, or if settlements above $80.00 are maintained, long positions can be initiated. If this scenario develops, we’d expect to see a move into the $81.50 to 82.50 Resistance range with a possible stretch up to last week’s and current March highs at 83.00 to 83.16. Longs positions should be scaled back at the $81.50 to 82.50 range. The Bulls will need to produce daily settlement prices above $82.00 and 82.50 to negate this week’s bearish outlook while drives beyond 83.00 has the potential to start a blow off run to 2010 highs at 83.95 for the spot contract up to 85.00 for the April contract.
