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Crude Oil Market Analysis

April crude oil prices rallied during the early morning hours but fell short of a test of yesterday’s high ($106.48). Since then, a dose of disappointing economic data and mounting
concerns whether Greece can execute new reforms and austerity measures has tempered the outside market tone. February Chinese Purchasing Managers’ data showed the fourth straight month of contraction and European service sector data unexpectedly shrank in January, and that has injected a level of doubt over global recovery prospects. Probably more concerning to the crude oil market was the rather sharp drop in Chinese export orders in the wake of the Euro zone debt crisis. Meanwhile, it appears that the crude oil market continues to sport a level of support from supply disruptions fears out of the Middle East. While estimates for OPEC spare capacity are in the range of 2.8 million barrels per day and offset Iran’s 2.2 million barrels per day of production, ideas of improving global oil demand and reduced North Sea output might have fostered the fear premium in the market. So far this morning, April crude oil prices have shrugged off disappointment by the IAEA and their talks in Tehran and over Iran’s nuclear program. Perhaps that is already priced in. The spread differential between April Brent and WTI crude oil remains under $16 a barrel premium to Brent this morning, off $2.00 from last week’s high. It is possible that this spread comes under added pressure as Enterprise Products has begun the process of reversing the flow of crude oil through the Seaway pipeline. The Presidents’ Day holiday delayed the release of weekly inventory data by one day. Expectations for this week’s inventory report are mixed, with the market leaning toward a slight draw of around 250,000 to 500,000 barrels. US inventory levels broke a four week streak of builds last week, supported by an increase in imports. Price action in April crude oil favors the bull camp, with swing low support at $104.61. This also corresponds with yesterday’s breakaway gap, which leaves support at $104.61 down to $104.50. Meanwhile, prices have reached into overbought territory after an impressive February rally into yesterday’s high of 11.1%, and that leaves the market susceptible to a downside correction. The early morning bias favors the bear camp, but losses appear limited until prices break $104.90 uptrend channel support.

Technical Analysis

CRUDE OIL (APR): Rising stochastics at overbought levels warrant some caution for bulls. The market’s close above the 9-day moving average suggests the short-term trend remains positive. The gap up move on the day session chart is a bullish indicator for trend. The market’s close above the 2nd swing resistance number is a bullish indication. The next upside target is 107.65. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 106.96 and 107.65, while 1st support hits today at 105.10 and below there at 103.92.

 

StockMarketNews Research Team 

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