Crude oil prices posted gains for the fourth straight week to start off the month of August closing at $70.93 last week, $1.48 higher from the prior week. Trading for the week was mostly sideways with wide fluctuations, however, the Bulls defended pullbacks against the $70/barrel level. Investors continued to focus on a hopeful economic outlook as the unemployment rate unexpectedly dropped in July to 9.4 percent while strong equities and a weak dollar contributed to the much of the gain last week.
The weekly inventory stats were overall bearish as crude stockpiles increased and product inventories dropped less-than-expected, however, the Bulls focused on the demand aspect of the report. Fuel demand increased 3.1 percent to 19.3 million barrels per day, the highest level since the week ended Feb 27 according to the DOE. The market posted its best level at $72.84 on Friday, but turned south on profit taking as the dollar strengthened, ending with a 2.1% gain for the week.
Bullish traders continue to anticipate future demand picking up as recent economic reports indicate a slightly improving economic situation. However, it should be noted the fundamentals remain bearish with ample supplies and overall weak demand. Additionally, OPEC increased oil production by 100,000 barrels per day in July for the fourth month in a row as higher prices have spurred members to exceed production quotas, adding to the already oversupply situation. That being said, any higher pushes in price of oil may be difficult to sustain in the long run.
Technical Outlook
The weekly trend remains up with the market entering a 5-week uptrend channel (5 W ↗ TL CHNL) while the short term daily trend turned sideways last week with a series of small body candlesticks signaling indecision within the $70.00 to $73.38 range. We’ve expected choppy trading within this range, however, maintaining trade above this week’s initial Support at $70.35 to 69.70 will have bullish implications and continue to target the $72.00 to 73.38 range. With the 2009 high placed at $73.38, trade above there will spark the next bull leg that will target the top of the 5 W ↗ TL CHNL at $75.00 up to the widely watched Fibonacci 38% retracement level at $76.00. Producing settlements above the $76.00 level brings the $80.00 level into focus in the coming weeks.
The initial downside turnover this week is placed below $70.35 to 69.70 Support range shifting short term weekly momentum down while aiming for the current August low at $69.09, but overall showing room for a corrective slide to $68.00 down to the bottom of the 5 W ↗ TL CHNL crossing at $67.15. Trade holding the 5 W ↗ TL CHNL offers solid buying opportunities for a rebound back to the $70.00 area with settlements above there needed to restore bullish trading. A violation of the 5 W ↗ TL CHNL opens the flood gates for an extended corrective washout into the $66.00 to 65.00 range.
