Crude oil prices closed below 4000 last week for the first time since January 20th as the economic recession remains the driving force for weak prices in addition to speculation that the stimulus plan will not boost oil demand in the short term. Additional pressure came from the DOE reporting a climb in crude stocks of 4.7 million barrels for the week ended February 6th which dropped crude to monthly lows at 3355, just above long term support zone of 3300 to 3250. After five consecutive down days the March contract corrected Friday on a substantial short squeeze closing the week at 3751.
Overall market is bearish within a four week downtrend channel (4 W v TL CHNL) with the outlook expected to remain bearish below the 3860-4000 resistance range this week. Recovery moves contained below 3860-4000 will present selling opportunities with an initial objective at Friday’s key breakout range at 3625-3565. The initial breakdown this week below 3625-3565 renews bearish pressure with an overall objective at last week’s low and long term Support range at 3355-3248. A close below the 2008 lows at 3248 is negative and will target the next extreme low at 3050-3000, the bottom of the 4 W v TL CHNL.
Trade that can stabilize above 3600-3500 Support will keep price action in a choppy range bound pattern which will continue to challenge 3860-4000 Resistance. Steady trade or a closes above 4000 this week will be bullish on prices with the next target range at 4155 to the February high at 4268. Key breakout this week above 4268 and 4300 will reinforce the bulls for a minimum run to 4500-4600 and a potential thrust back to major Resistance at 4800-5000.