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Crude Oil Analysis for the Week of November 7, 2011

Crude oil reached a three-month high on Friday after the U.S. Labor Department reported that the unemployment rate declined to 9 percent in October, less than the 9.1 percent median estimate of economists. The rally meant the market was able to keep alive its longest streak of weekly gains in more than two years. It also signaled that speculators are looking for increased demand despite the lingering issues in the Euro Zone.

With the jobs report putting a positive spin on the economy by revealing a small sign of recovery, traders were able to shrug off the negative news regarding the International Monetary Fund’s failure to provide additional resources to shore up Europe’s debt issues. Although no one is certain what is going to happen in Europe, it looks as if oil traders have decided to maintain their focus on the U.S. economy rather than speculate on what lies in store for the global economy should the situation in the Euro Zone worsen.

Technically, December Crude Oil is in an uptrend on the weekly chart. Based on the range of $115.45 to $75.15, the upside target remains $95.30 to $100.06. A test of this area could attract profit-takers. Uptrending Gann angle support comes in at $91.15. The market will weaken on a close under this angle. Traders should also begin to rollover to the January Crude Oil contract this week.

Factors Affecting Crude Oil This Week:

U.S. Economy:  Despite the better than expected unemployment rate the U.S. economy is “underperforming” according to President Obama. He also added that the employment figures “were positive but indicate once again that the economy’s growing way too slow.” Oil prices have trended higher for almost five weeks despite this assessment. This could mean excessive bullish speculation or that traders expect the economy to improve enough to spur additional demand. In order to support their positions, traders are going to be watching the economic figures. This week’s key figures include consumer credit on November 7 and wholesale inventories on November 9. The key market mover this week is most likely going to be Federal Reserve Chairman Bernanke’s speech on Wednesday, November 9. Traders will be looking for hints of quantitative easing or additional stimulus.

Euro Zone Risk:  Although the risk of a currency catastrophe seems to have been lessened because of the Euro region’s restructuring plan, the Euro Zone is still a major risk factor for oil prices. Uncertainty remains extremely high, but recent price action indicates that traders may be discounting this. The focus is on Greece at this time since Italy appears to be contained. Nonetheless, a shift in sentiment could trigger a profit-taking break in crude oil should the situation worsen this week. With traders focusing on headline news, the surprise may be in the European economic figures. Any signs of a weakening economy will trigger renewed talk of a global recession which will be another reason why long traders should take protection against a possible break in prices.

Supply and Demand:  Last week’s increase in supply came as a surprise. The recent supply and demand figures seem to be disjointed from the economy. Traders may be reacting to tight supply situations in Oklahoma and not speculating on a strengthening economy. These are two reasons why trading the weekly API and EIA can be a risky venture. If there is speculation going on it’s regarding the Euro Zone and China. Traders seem to be speculating that Europe will sort out its problems and demand will continue from China. Increased production in Libya hasn’t been a factor yet, but civil problems in Nigeria may be. All of these issues seem to indicate that using the weekly supply and demand report as the sole reason for buying or selling crude oil may be a little risky at this time.

By. FX Empire

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. The FX Empire Network’s other flagship sites include: StocksEmpire.com and CommoditiesEmpire.com.


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