Crude Oil rallied after NFP Friday, with price hitting above 103.0, closing at 103.3 when the week ended. Morning morning saw price continuing the rally of Friday, hitting 16 cents below 104.0 USD per barrel. However, price has tumbled lower due to risk aversion during Asian hours, with 103.0 under threat once again. Comparing Crude price to the rest of the risk correlated assets, we can see good sensitivity of Crude Oil towards risk trends, and less influenced by USD (which has strengthened significantly post NFP as well). This is a good sign as it suggest that current price is actually fundamentally supported – stronger economy -> stronger demand for Oil, in line with what has been observed via API and DOE Crude Inventory declines. This implies that even if a sell off take place, e.g. now, we should be able to see strong support moving forward.
Technicals in the short-term agrees with the assertion above, with Stoch/Signal lines both getting closer to the Oversold region, but it is possible that readings will signal Oversold when/before price hits 102.0, lending strength for the support level to hold. As long as 102.0 holds, overall short-term bias would remain bullish, which will allow bulls to test 103 and perhaps even 104 after they have rested.
Weekly chart suggest that price is currently experiencing a bullish breakout above previous 97.5 – 99.0 ceiling. This should theoretically open up 110.0 previous 2012 swing high, and perhaps 115.0 2011 swing high as bullish targets. However, looking at previous years peaks and troughs, it seems that there is a narrowing wedge forming, which may potentially “clip” the bullish breakout. Stochastic readings are also deep within the Overbought region, and even though readings are still not as high as the peaks back in Sep 2012 and Feb 2013, it suggest that a move towards 110 and higher is much harder.
Fundamentally it is worth noting that the increases in Crude Oil prices came despite OPEC saying that they will increase their output to 24.18 million barrels a day, up from 23.64 million. This is a very good sign that we could see further bullish pressure building up towards the end of 2013, especially when winter sets in with demand for energy consumption increases.
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