Crude oil prices finished the week and the month on its highs closing at 4476 after reaching its highest level in three weeks at 4530. The market began last week under pressure but reversed off of the key weekly support range at 3800-3700 and made a moon shot to the highs in the days following. Mid-way through the week, oil prices got a fundamental boost from a decline in gasoline supplies suggesting fuel demand may be improving. All in all, it was a technically and somewhat fundamentally bullish week.
As we begin a new month, the market remains in a fundamental battle between the Global recession and OPEC production cuts. The overall demand outlook for 2009 remains weak, yet the production cuts appear to have stabilized prices thus far. OPEC will next meet in Vienna on March 15. Originally, officials were hinting at additional production cuts, however, they’re now giving conflicting signals with oil prices above 4000. Leaving production as is will likely lead to continued sideways trading between 5000 and 3000 while further cuts are sure to bolster prices into the second quarter.
From the technical side, the long term trend remains down, however, in the near term the weekly and monthly charts indicate the market is trying to put in a bottom. The weekly chart broke some important downtrend lines last week and is now in a three week uptrend (3 W ^ TL) while the monthly chart shows a triple bottom at the 2008-2009 lows within the 3355-3248 range, a ‘hammer’ reversal candle and has also broken a four month downtrend (4 M v TL).
That being said, we can take a ‘buy dips’ approach this week against weekly support at 4270-4000. Yet, the Bulls will need to penetrate the nine week downtrend line (9 W v TL) at 4550 to generate follow through buying with the initial objective at 4700, and overall expected to work into the 4700-5000 range with profit objectives at 4825-4860 and 5000-5047. With the 2009 high at 5047, multiple closes above there show room to the Dec 08 high at 5462 in the coming weeks.
On the flipside, if the Bulls are unable to advance through the 9 W v TL at 4550, then expect solid testing of the 4270-4000 weekly support range. Trade holding the 4270-4000 range supports the bullish scenario mentioned above. Failures to maintain the 4000 level indicates the Bears are still in charge and prices will retreat back to last week’s lows at 3800-3765. Any price action below 3765 is extremely bearish on trade with an overall objective at 3400-3248 major annual support for the week.
