Crude Shows Resilience Despite Dollar’s Appreciation

Crude has been noticeably resilient considering the steep pullback in the EUR/USD, GBP/USD, and gold coupled with disappointing weekly inventories.  Crude normally exhibits a strong correlation with these investment vehicles, meaning there is something else driving the commodity’s engine.  Bulls our sticking to their guns, indicating they expect global demand to continue its recovery, bolstering price as OPEC keeps production at a reduced rate.  However, it seems that crude’s ultimate path relies upon the performance of U.S. equities.  The relative stability of the S&P futures is allowing crude to climb back to our 2^nd tier uptrend line and the futures are presently trading back in the $70/bbl range.

Investors should keep in mind that last week’s sharp pullback was accompanied by heavy volume, whereas the pops to the upside are coming with declining volume.  Therefore, it remains to be seen whether the bulls have the dedication to follow through and take down the psychological $70/bbl level.  Crude has already had an impressive run, and a sizeable pullback wouldn’t be uncalled for.  Regardless of any near-term uncertainty, we have no reason to alter our medium-term bullish outlook.  The 2^nd tier uptrend is far below and it would take a sizeable retraction to counter the upward force in place.  Meanwhile, investors should keep a close eye on the volume accompanying upcoming movements.  If crude futures manage to drive past $70/bbl on rising volume, this could be indicate more near-term gains.  On the other hand, another contraction on large volume would likely denote the opposite.

Fundamentally, we maintain our supports of $67.91/bbl, $67.29/bbl, $66.78/bbl, and $66.13/bbl.  To the topside, we find resistances of $68.63/bbl, $69.39/bbl, and naturally $70.35/bbl.  $65/bbl becomes a psychological cushion with $70/bbl serving as a psychological barrier.  The crude futures are currently trading at $68.52/bbl.

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