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Crude Oil Analysis for the Week of March 19, 2012

May Crude Oil finished the week with a slight gain. It was a quiet week with the market showing a bias to the downside until Friday when prices surged, taking back all of the week’s losses.

Two week’s ago, crude oil posted a weekly closing price reversal top which typically leads to a 2 to 3 week break equal to at least 50 percent of the previous rally. Last week the market finished its two week decline but failed to reach its minimum objective of $103.61 before buyers stepped in at $104.29.

Although the late week rally didn’t change the technical picture, it did demonstrate the resilience of the market’s strong uptrend. With the market holding above the 50 percent level as well as a pair of uptrending Gann angles at $103.26 and $99.53, all it is going to take is a breakout above another Gann angle at $110.26 to reset the course for a challenge of the April 2011 top at $113.65.

Speculators drove up crude oil prices late last week on worries of a supply disruption from Iran. In addition, the U.S. Dollar sold off sharply making crude oil less expensive for foreigners. The break in the dollar was caused by a weaker-than-expected U.S. consumer inflation report. This news reduced the odds that the Federal Reserve would begin tightening its monetary policy sooner than expected.

While traders are still assessing the potential impact of a European Union embargo of Iranian oil, talk is circulating that Asia wants to be exempted from the embargo. Before the market rallied on Friday, pressure was coming from the news that Saudi Arabia was continuing to provide enough oil to offset any losses from Iran’s supply cut to Europe. Additionally, prices were pressured when Britain said it would cooperate with the United States in releasing oil reserves later this year. This move is being described as political since the current U.S. administration doesn’t want to see an economic slowdown during an election year.

In supply and demand news, crude inventories rose last week, with stocks rising to a 9-month high according to the U.S. Energy Information Administration. Crude oil inventories rose 1.75 million barrels to 347.45 million barrels in the week to March 9. This figure was largely in line with analyst forecasts.

With supply rising and demand low, one would expect crude oil prices to fall, however this hasn’t been the case. This leads me to conclude that speculators are still driving this market higher. Hedge funds in particular have been very active participants in the long side of the market.

This scenario is likely to continue as long as the potential for supply disruptions continue to exist. The recent rise in the U.S. Dollar may have temporarily halted the rise in crude oil prices, but if the dollar weakens this week then prices are likely to surge.

With the main trend still up on the weekly chart after two weeks of consolidation, Friday’s positive close should give the market an early bias to the upside this week.

Factors Affecting Crude Oil This Week:

Geopolitical Events:  Potential disruptions in supply have been underpinning prices. This is likely to continue.

U.S. Economy:  The week began with traders talking about the possibility of the U.S. Fed tightening its monetary policy sooner than expected, but ended with soft inflationary news. This weak fundamental is being offset, however, but speculation of supply disruptions.

Supply and Demand:  Supply is high and demand is low, but prices are not reflecting these numbers. Instead the focus appears to be shifting to what may happen to supply rather than what is happening.

FXEmpire.com is the Forex flagship site of the FX Empire Network. The FX Empire Network provides readers with the most expert and most timely technical analyses, fundamental analyses and news-pieces; this in order to empower them to make for themselves the best possible financial decisions.
FXEmpire.com is updated daily with video based Technical Analyses, text based Fundamental Analyses and news-pieces. Our readers receive a review of the past week’s market activity coupled with an outlook for the upcoming week and regular market updates.

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