Crude Rises After More Nigerian Militant Attacks

Crude futures are ignoring the negative report from the IEA regarding demand after Nigerian militants attacked and forced the closure of Shell production wells.  Militant attacks are on the rise again in Nigeria, and are countering any negative news investors receive regarding demand.  However, the militant attacks are a near-term shock, whereas the IEA’s report describes a long-term slowdown in demand.  The IEA released a report lowering their growth expectations regarding consumption of oil over the next 5 years, and the agency doesn’t expect crude demand to return to 2008 levels until 2012.  However, regardless of the consumption slowdown resulting from the global economic contraction, U.S. weekly crude inventories have come in shallow six out of the last seven weeks.  Therefore, cuts in production from OPEC are having their desired effect on price.  Crude is back above the psychological $70/bbl Monday and is presently battling our 2^nd tier downtrend line.

Despite the resilience of crude, the commodity’s medium-term fate ultimately relies upon the performance of U.S. equities and the greenback.  Should U.S. equities make another leg down and the greenback appreciate in succession, crude could find itself following suit due to positive correlations.  Meanwhile, the S&P futures and major Dollar pairs find themselves at a critical juncture directionally.  Investors are waiting for more concrete data before making a commitment.  Momentum is in favor of the upside since investment vehicles have shown encouraging resilience to the downside lately.  However, the tide can change quickly, so we will need to see how the data turns out this week before feeling comfortable with position trend-wise.  That being said, investors shouldn’t get too carried away with crude’s pop today.  We still see two downtrend lines bearing down on price, and the militant attacks should only result in a temporary shock.  The kicker will be the economic data beginning Tuesday with America’s consumer confidence and PMI numbers along with Japan’s Tankan manufacturing index.

Present Price: $71.13/bbl

Resistances: $71.07/bbl, $71.57/bbl, $71.86/bbl, $72.25/bbl, $72.86/bbl

Supports: $70.57/bbl, $70.05/bbl, $69.59/bbl, $68.92/bbl, $68.42/bbl

Psychological: $70/bbl

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