• 24 hours PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 1 day Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 1 day Syrian Rebels Relinquish Control Of Major Gas Field
  • 1 day Schlumberger Warns Of Moderating Investment In North America
  • 1 day Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 1 day Energy Regulators Look To Guard Grid From Cyberattacks
  • 1 day Mexico Says OPEC Has Not Approached It For Deal Extension
  • 1 day New Video Game Targets Oil Infrastructure
  • 1 day Shell Restarts Bonny Light Exports
  • 2 days Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 2 days Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 2 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 2 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 2 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 2 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 2 days Rosneft Signs $400M Deal With Kurdistan
  • 3 days Kinder Morgan Warns About Trans Mountain Delays
  • 3 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 3 days Conflicting News Spurs Doubt On Aramco IPO
  • 3 days Exxon Starts Production At New Refinery In Texas
  • 4 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 4 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 4 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 4 days China To Take 5% Of Rosneft’s Output In New Deal
  • 4 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 4 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 4 days VW Fails To Secure Critical Commodity For EVs
  • 4 days Enbridge Pipeline Expansion Finally Approved
  • 4 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 5 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 5 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 5 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 5 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 5 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 5 days Aramco Says No Plans To Shelve IPO
Alt Text

Clashes In Kurdistan Send Oil Prices Higher

Reports of skirmishes between Iraqi…

Crude Oil Analysis for the Week of December 26, 2011

Crude Oil Analysis for the Week of December 26, 2011

Last week the fundamentals clashed with the technicals in the February Crude Oil futures market and by week’s end the fundamentals clearly won. Even though the contract did not take out any significant price levels, the strong upside momentum probably gave bullish traders the incentive to continue to buy while putting fear into the short-traders and encouraging them to continue to cover their positions.

Technically, the main trend on the weekly chart remains up although momentum was clearly beginning to shift to the downside after 4 weeks of consolidation. Even the penetration of a key 50 percent price level at $95.15 as well as an uptrending Gann angle had to have had long traders on edge as the market appeared to be setting up for a retracement of the rally from $75.73 to $103.28.

The first clue that perhaps the market was not as weak as the charts indicated was its inability to break the previous week’s low at $92.70. Regaining the key 50 percent price at $95.15 and the uptrending Gann angle at $99.73 were additional clues that perhaps the selling pressure was not as strong as the chart pattern indicated.

Oil price movements

Now that momentum has apparently shifted back to the upside, bullish traders are going to have to continue to support the market on any kind of weakness or the shorts may regain control and the downward cycle would resume. The major support area this week is a Gann angle cluster at $97.57 to $97.28. The weekly close at $99.68 was well above the cluster so unless there is a gap-lower opening this week, it looks as if the bullish formation should remain intact, allowing the market to follow-through to the upside.

If last week’s rally was fueled by strong momentum, then this week’s rally is likely to be a grinder because of a series of resistance levels. The first is the Fibonacci retracement level created by the $114.57 to $75.73 range at $99.73. This horizontal resistance level is followed by $100.28 and $101.78. Once this area is cleared, February Crude Oil will have a clean shot at taking out the main top at $103.28. A move through this level will reaffirm the main uptrend.

An optimistic outlook for the U.S. economy and a weaker U.S. Dollar helped support crude oil prices last week, but the biggest market driver was a massive decline in U.S. crude stockpiles.

Last Wednesday the U.S. Energy Information Administration reported that oil inventories fell by 10.6 million barrels to 324 million barrels. This decline represented the largest weekly drop since February 2001. At the same time, total supply reached a three-year low.

Before you conclude that a robust economy in 2012 must be in the offing, keep in mind that the massive drawdown in oil stocks may have been triggered by end-of-the-year tax activity by crude oil refiners. Even with this event factored in, the size of the drop caught many analysts by surprise as well as ill-informed short-traders. In addition, traders should keep in mind that not all of the oil that gets refined stays in the U.S. When the Dollar gets cheap, oil refined by U.S. refineries gets exported.

While a 10 million barrel drawdown is huge, traders should keep in mind that this may have been a one-time event due to an odd combination of factors. With a slight bias to the downside developing prior to the release of this bullish news, a relatively large amount of shorts had been quietly building their positions.

Since the EIA report was a surprise, the entire rally may have been driven exclusively by short-covering. The question that needs to be answered this week is how aggressive are the bullish traders willing to be as prices approach the $100 per barrel level. We may not know that answer for the first couple of days of the week, however on Thursday when the next inventory report is released, there is no doubt that both short and long traders will be paying close attention to the number.

Factors Affecting Crude Oil This Week:

Supply and Demand:  Because the Christmas holiday is going to be observed on Monday, this week’s EIA Inventory Report will be pushed to Thursday. Traders will be looking for a slight drawdown. Back-to-back double-digit drawdowns are not expected, but this news would move the market substantially.

European Sovereign Debt Crisis:  No news is good news. If conditions continue to improve or if optimism surfaces because of on-going negotiations or positive moves by the European Central Bank, look for the Euro to remain firm. A weaker U.S. Dollar is bullish for crude oil and could help to keep the market firm.

U.S. Economy:  No news is good news II. Traders just want to continue to see the U.S. economy holding steady. With the Fed signaling no new actions to prop up the economy, everything seems to be hinging on the situation in Europe.
Middle East Conflicts:  Always a factor because of its tendency to flair up without notice. All eyes continue to be focused on Iran and the Strait of Hormuz. In addition, the escalating situation in Syria must be watched closely. Finally, watch for deals between Libya and OPEC.

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.

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News