Crude oil futures rose more than 8% last week, opening on it’s lows at 5600 on Monday and finishing strong on Friday at 6167 as the Bull camp had no fears of holding positions into the long holiday weekend. A multitude of bullish news catipulted the market off of a weekly double bottom at the key 5600 technical support level with militant unrest in Nigeria providing a supportive environment for higher prices over the course of the week. An upbeat housing report provided economic optimism while larger than expected draws in crude inventories buoyed prices passed the 6200 mark. Finally, the market ended strong, just off of its highest levels for the week as the Dollar fell to its lowest level against the Euro in nearly five months.
This week’s fundamental focus will be on the usual inventory report as the Bulls will look for continued draws to keep prices afloat. The main event that may determine the near term future of oil prices is this Thursday’s OPEC meeting in Vienna. With the market up over 70% from its February lows near 3400, analysts do not expect OPEC to announce production cuts. Rather, the cartel is expected to push its members to comply with the current production quota. All in all, the market has been receiving a fundamental lift recently; however, it is imperitave to remain cautious as overall demand remains weak as a result of the global recession.
On to the technicals, the monthly and weekly charts paint a bullish picture with the market now in a 6-week uptrend against initial weekly support at the 6000-5800 range. The daily chart on the other hand raises some concerns this week as we close in on the end of the month with recent activity flipping on either side of the 200 day moving average (DMA) along with a potential double top at the 6200 area.
Initially, trade below the 200 DMA, which is placed around the 6100 level at the time of this writing (tune into daily reports to follow the 200 DMA), is expected to foster minor profit taking but with a “buy dips” bias into the 6000-5800 support range. Maintaining trade above this range will keep bull forces in control and continue to work inside the 6100-6225 range. Breakout trade or settlements above 6225 this week will pave the way for resumed advances targeting the next key resistance objective at 6400-6500 with the potential for a blast to 6800 in the event of an OPEC or inventory “surprise”.
If the Bear camp can produce any settlements this week below 6000, the Bulls will need to be on guard for an end-of-the-month profit taking turnover. The key breakdown is below 5800 which is expected to set off a significant downturn that will initially aim for last week double bottom support at 5600. Failures to reclaim 6000 following the breakdown or a drop below 5600 confirms short term bearish control leading to steeper declines for the week with a key downside objective at the May upside breakout area and the monthly uptrend line for June at 5466-5400. Sellers should book profits there should this range be reached as we anticipate it will play a key role in next month’s technical outlook.
