Oil prices rose for a second straight week to post fresh 4th Quarter highs at $72.55 as a frail dollar and economic optimism outweighed fundamental weakness while technical clues preceeded the rally. Prices traded lower early in the week, but the Bulls defended technical support at the 100 DMA at $68.00, setting the stage for a rally to develop. The weekly inventory report was primarily bearish and pushed prices back down mid-week with gasoline leading the way as the EIA reported an unseasonable build of 2.9 million barrels in gas stocks. Crude stockpiles rose by 1 million, but had little impact as that was in line with analysts expectations. In the end however, optimism over the economy kicked in on news that the trade deficit narrowed in August while a government report showed weekly jobless claims dropped in the prior week. The International Energy Agency added fuel to the rally as it raised its forecasts for global oil demand for 2009 and 2010. Crude oil prices for November delivery rose 2.6% on the week closing at $71.77.
Technical Outlook
Last week’s technical picture was bullish off of the 100 DMA at $68.00, and with the strong close above the 3-month downtrend line at $71.40, the market is poised to sustain rallies this week. We enter the week in a 3-week uptrend channel ($70.75) with a ‘buy dips’ bias against the weekly Support range at $72.00 to 70.75 as we look for trade to probe into the $73.38 to 74.96 weekly Resistance zone consisting of the 2009 spot month highs. Trade above $74.96 is expected to trigger buy stops that carry the market up to the next key objective at the $75.90 Nov. contract high for 2009 up to the widely anticipated 38% Fibonacci Retracement mark of the 2008 bear drive coming in at $76.35. Steady trading or settlements above $76.35 will reinforce strength bringing the $78.00 to 80.00 range into play in the forseeable future.
On the sell side of the market, we’ll keep a close watch on two key areas for potential shorting opportunities. First, any signs of rallies losing steam within the $73.38 to 74.96 range alerts to cover longs and/or consider shorting operations for a snap back to the $72.00 to 70.75 Support zone. Second is the 38% Fibonacci level at $76.35. If we fail at this level, we may have a top for 2009 which would set up for a long term shorting play for the remainder of the year. In this scenario, we would need the fundamental weakness to kick in for confirmation that highs are in place. Otherwise, our initial downside turnover this week is placed below the 3-week uptrend line at $70.75 for pullback to the 70.00 to 69.50 secondary support zone. With the 9-month uptrend line crossing at $69.50, trade or settlements below there present a sustainable bearish correction targeting $68.00 while leaving the market vulnerable solid flush back to $67.00 to 65.00 over the course of the week.
