Is It Possible Crude Oil Has Risen Too Far Too Quickly?

Crude futures continue their incredible ascent with OPEC likely to keep their production level unchanged.  Volume managed to rise yesterday despite a mixed session, indicating a bit of uncertainty in the market as U.S. equities battle their highly psychological 900 level.  We don’t expect volume to abate today after better than expected durable goods orders with new home sales and weekly crude oil inventories on the way.  The improvement in durable goods orders implies automobile purchases, a stabilizing consumer, and consequently an increase in the consumption of crude.  Investors are ignoring large U.S. inventory levels week in and week out while banking on a global economic recovery.  If inventories should come in shallower than expected, then we could see crude futures continue their impressive rally today.

Technically, it is difficult not to be bullish on crude futures with no near-term significant barriers in sight coupled with large upward movements backed by considerable volume.  On the other hand, the overwhelming optimism surrounding crude could be a sign of overbought conditions.  Is it possible crude has risen too far too quickly?

Then again, we are not in normal times.  The liquidity injections and quantitative easing taking place globally is stoking fears of inflation, implying rising CPI and PPI with oil leading the way.  Therefore, although some near-term consolidation/pullback is possible, we maintain our bullish stance trend-wise until further notice.

Fundamentally, we find supports of $62.93/bbl, $62.42/bbl, $61.98/bbl, $61.40/bbl, and $60.78/bbl.  To the topside we see resistances of $63.03/bbl, $63.45/bbl, and $64.00/bbl.  $60/bbl becomes a psychological cushion with $65/bbl serving as a psychological barrier.  The crude futures are currently trading at $63.42/bbl.

Subscribe by RSS Subscribe by Email