Oil prices swung in a wide range last week, rallying to a high of $81.06 off of a technical double bottom pattern at $76.55, only to fall back down as rally efforts peaked at the weekly downtrend line drawn from 2009 highs at $82.00. Crude oil for December delivery ended Friday’s session squeaking out a marginal week on week gain of just 43 cents to close at the lower end of the range at $77.43.
The economic and fundamental factors contributing to the initial price rise last week was positive manufacturing data from the U.S. and China, record high gold, the weekly inventory stats and of course, the weaker dollar. The DOE reported an unexpected decline in crude and gasoline inventories last week as imports dropped and demand rose. Crude stocks dropped 4 million barrels while gasoline fell 300,000 barrels vs. expectations of modest gains. Gasoline demand rose 1.8% to 9 million barrels per day and net crude imports dropped 8.6% to 8.09 million barrels per day.
The unemployment report reared its ugly head at the end of the week reversing nearly all of the weekly gains as nonfarm payrolls dropped by 190,000 in October bringing the unemployment rate to 10.2%, the highest level in 26 years. The total number of jobs lost in this recession now stands at 7.3 million.
As the new week gets underway, the volatility continued with the price of oil snapping back to the $80.00 level on dollar weakness and as Tropical Storm Ida makes its way through the Gulf, shutting down production in its path. The dollar and storm developments will be the forerunner this week, however, gains may be limited as last week’s unemployment data confirms the economy is still weak and future demand expectations may not come to fruition.
Technical Outlook
The market has been in a flagging consolidation pattern since peaking at $82.00 three weeks ago with the underlying trend bullish. The flag, made up by a 4-week downtrend channel, places Resistance this week at $80.00 to 81.06. Generating multiple settlements this week above $80.00, or a solid break above $81.06 with strong volume is needed to resume the prior uptrend with the initial objective to challenge the current 2009 high at $82.00. Follow through above $82.00 is expected to trigger the next Bull leg to $83.00 and as high as $85.00 by the end of the week while paving the way for a blow off run to the 50% retracement point of the 2008 sell off at $90.00 in the coming weeks.
On the downside this week, failures by the Bulls to produce daily settlements above $80.00, or failed attempts to breach $81.06, will have a highly probable chance of turning momentum south to revisit the bottom of congestion at $77.00 to 76.00 weekly Support. The key bear breakdown is expected to develop on a drive through $76.00 with a target range at the prior 2009 summer highs at $74.95 down to 73.35. Short positions should be squared off inside the $74.95 to 73.35 range if reached as this will be the next ideal region for Bulls to re-load. A weekly settlement below $73.35 has very bearish implications on the market in the coming weeks and even into the end of the year with prices likely to probe into the $70.00 to 65.00 range.
