Crude oil prices remained under pressure for much of last week as the global economic crisis continues to be the main component driving prices. Price action was weak off the starting gate with oil below 4000 resulting in lower trade to around the 3400 area. However, with major annual support in the 3400-3248 range, a surprise draw in inventories for the first time this year and short covering ahead of the March expiration, crude oil spiked back to 4000. Spot crude finished slightly higher on the week while the April contract squeeked out a close above 4000 and 4003.
The overall technical picture is bearish though trading for 2009 has been sideways with a fundamental battle between weak demand and OPEC production cuts. In the coming weeks, the focus will turn to the OPEC cuts as they begin impact supplies. The cartel has cut 4.2 million bpd since September and has hinted they will make another cut in March which could put upward pressure on prices in the near term.
Looking at the weekly technicals, last week’s rebound caused the market to break the shorter term three and five week downtrends but the long term trend remains down (19 W v TL). The initial key breakout this week is above the 19 W v TL crossing at the 4080-4155 area and will prompt continued buying this week with an early objective at 4270-4400. Producing closes above 4270-4400 adds strength to the bullish scenario with the potential to reach 4700-5000 by week’s end.
Failures to convincingly violate 4080-4155 this week will keep price action under pressure while pulling back to challenge key weekly Support at the broken three and five week trendlines within the 3800-3700 range. Dips that hold 3800-3700 will offer solid buying opportunties as only trade below 3695 this week will fully rekindle bearish forces for continued testing of major annual support at 3400-3248. Any moves below 3248 are extremely bearish and expected to trigger the next leg down with the 3000-2700 range as the initial objective.
