Crude Continues to Consolidate above $80/bbl Despite Strong Dollar

Crude futures bounced off of our 1st tier uptrend line and continue to hold strong above the $80/bbl level.  We notice similar strength in gold above $1050/oz and the EUR/USD above 1.50.  Therefore, the bulls are fighting to keep the upward momentum going.  Today OPEC announced it would increase production should crude hit $100/bbl again.  As a result, OPEC has created a near-term ceiling for crude should near-term gains accelerate.  Meanwhile, investors are digesting news that MEND, a Nigerian militant group, has agreed to another cease fire with the Nigerian government to make way for further negotiations.  MEND is notorious for attacking Nigerian oil facilities in the hope of distributing profits from crude production more evenly throughout the country.  The Nigerian government may be more willing to negotiate with MEND this time around since the government is courting China to invest billions in the country’s crude industry.  China desires a more stable production environment in Nigeria, giving the Nigerian government more initiative to strike a deal with MEND.  The ceasefire is a negative catalyst for crude since it implies fewer disruptions in production and the potential for an increase in aggregate supply.  However, the MEND ceasefire will likely prove to be more of a drag on price rather than delivering a large, noticeable impact.

Fundamentally speaking, the improvement in U.S. and EU data points along with positive Q3 earnings have helped fuel crude’s recent run beyond $80/bbl.  Encouraging corporate performance and the increase in manufacturing production brings hope that the demand side of crude is getting back on track.  Furthermore, the recovery of the global economy has driven the Dollar lower, making Dollar-denominated commodities such as crude a more attractive import.  However, near-term headwinds exist in U.S. equities, most notably the S&P’s struggle with 1100.  Any substantial setback in U.S. equities could deliver a blow to crude futures since the two are ultimately positively correlated.  Therefore, investors should keep an eye on econ data coming across the wire over the next couple trading sessions.  Of particular notice will be tomorrow’s CB Consumer Confidence number along with Core Durable Goods on Wednesday.  Both releases give investors a good idea of the health of the American consumer and influence investor expectation of future demand for crude.

In terms of technicals, it will be important for crude to stick around $80/bbl.  While the futures face limited topside barriers in the form of 10/22 highs and $85/bbl, crude has been on quite a run and some profit taking would not be out of the question.  That being said, investors should note the last large volume we witnessed was to the topside on 10/21, meaning the uptrend is still in place.  As for the downside, crude futures have technical supports in the form of our two uptrend lines and $80/bbl along with 10/21 and 10/16 lows.

Price: $80.88/bbl

Resistances: $81.30/bbl, $81.62/bbl, $82/bbl, $85/bbl

Supports: $80.44/bbl, $79.84/bbl, $79.39/bbl, $78.38/bbl

Psychological: $85/bbl, $80/bbl, $75/bbl

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