Prices rose through mid-week as the Federal Reserve kept interest rates unchanged and pledged to keep them low for an extended period of time. Also last week, Standard & Poor’s affirmed Greece’s sovereign ratings, sparking a euro rally and putting pressure on the dollar which in turn fueled higher oil prices. The weekly DOE report helped sustain rallies as crude inventories increased less than expected by 1 million barrels vs. 1.9 million forecast.
The tables turned on Thursday mainly on the Greece debt situation after a report said that Greece could seek help from the IMF if the European Union is unwilling to provide aid. The report strengthened the dollar against the euro putting pressure on oil prices which carried over into Friday. End-of-week profit taking also weighed on the market as buyers seemed reluctant to sustain operations above $83.00.
In other energy news, OPEC said at its meeting last week it would leave production quotas unchanged which was no real surprice to the market. The current quota stands at 24.845 million barrels yet compliance is only around 54% according to Platts.
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Technical Outlook: May Contract
Crude oil prices slipped for a second straight week with the weekly chart patterns beginning to look toppy on wild sideways action. Prices have been swinging back and forth in the $80.00 to $83.00 range leaving two small body candles with long upper and lower shadows in place, an indication of an exhausted market. In addition, there is a double top formation on both the weekly and daily charts with short term confirmation thus far as prices fell sharply on Thursday through Friday, setting a bearish outlook with trade poised to probe under $80.00 this week. Still, $80.00 is an important level, therefore in order to fully confirm a true double top, prices need to take out Support at $80.00 to $79.15 which would set a measured target at $75.00 for the week.
For the sellers, we’re expecting to find good selling opportunities on rallies within the $81.00 to 82.00 range with failures to trade above $82.00 this week providing a solid indication for lower prices. Our initial objective is to trade into the $80.00 to $79.15 weekly Support zone where some shorts should be covering. The key breakdown will either be triggered on settlements below $80.00 or as mentioned above on stable trade below $79.15 with the next target range at the 8-week uptrend line at $78.50 to $78.00 with plenty of room for a decent drive down to the current 5-quarter uptrend line at $77.00. Sellers will want to scale out of most positions this week in the $78.50 to $77.00 range. Trade or closes below $77.00 will promote the extension to the $75.00 projected target of the double top formation. A settlement below $75.00 on the week will line up $72.50 and $69.50 key pivotal points in the week ahead approaching the end of the month.
On the buy side this week, maintaining settlements above the $80.00 could spark some short covering while offering short term buying opportunities into the $81.00 to $82.00 range. Longs should scale back positions within the $81.00 to $82.00 range as the overall tone is bearish until $82.00 is violated. Trade or settlement above $82.00 is needed to boost rallies to challenge the previous swing highs at the $83.00 to $83.15 double top. Continue to cut back long positions against $83.00 in the event this turns out to be another range bound week, stalling at $83.00 and turning back to $80.00. Breakout trade or settlements above the $83.00 level this week indicates Bulls forces are clearly back in control of near term momentum with the yearly spot high at $83.95 an immediate objective while setting up for a potential strong buying wave that would line up the May contract’s yearly highs at $85.00 to $85.45.
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