Crude Oil Bulls Gain Some Technical Momentum

 | Sep 15, 2011 | 2:30 PM EDT
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West Texas intermediate (WTI) crude oil futures for October delivery on the New York Mercantile Exchange this week poked to a fresh five-week high of $90.52 a barrel. Crude prices are presently in a five-week, up-trend on the daily bar chart and have rallied by nearly $15.00 a barrel from the August 9 spike low of $76.15.

The crude oil bulls have gained a bit of fresh, upside technical strength this week. The climb in prices from the August low has come amid low volatility and has been "under the radar" of many market watchers. The uneventful price advance in crude suggests the same can continue in the coming weeks. However, the crude oil market bulls will have to produce multiple daily closes above $90.00 per barrel in nearby futures to gain better, upside technical momentum to then suggest prices moving into the mid-$90s a barrel, or even challenging major psychological resistance at the $100.00 level.

There is presently strong trend-line support for nearby crude oil futures at the $85.00 area. A drop in prices below that level would dent bullish enthusiasm and then suggest that crude prices will trade in a range between $80.00 and $90.00 in the near term. Should crude oil futures prices fall below major technical support at the August low of $75.71 (basis nearby futures), which is not likely, then fresh, serious technical damage would be inflicted to suggest prices would trade in a range between $65.00 and $75.00.

Oil Market Fundamentals not so Bullish

While the important technical chart posture in crude oil is presently tilted in favor of the bullish camp, the same cannot be said for the supply and demand fundamentals in crude.

In the past few weeks, economic data has come in weak for both the U.S. and Europe. Sluggish worldwide economic growth also means anemic demand for liquid energy. As long as the economic data coming out of the world's major industrial countries remains tepid, a bearish fundamental weight will remain on the crude oil market.

The recent European Union sovereign debt turmoil and a stronger U.S. dollar index have also limited speculative buying interest in WTI crude oil futures. If the U.S. dollar index continues to trend higher, the bullish, speculative side of the crude oil market will continue to be restrained.

Importantly, the crude oil market will likely continue to closely track the U.S. stock index prices. If the stock indices can continue to trend sideways to higher from their August lows, as has been the case for the past few weeks and should likely to continue, then WTI crude oil futures prices will likely do the same. If the U.S. stock indices come under strong selling pressure in the coming weeks and drop below their August lows, which is less likely but still possible, then crude oil prices would likely trend lower.


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