Crude futures have made an aggressive move above our 3rd tier downtrend line and the psychological $80/bbl as investors react to multiple developments. First and foremost, a record-setting cold front is hitting the U.S., increasing demand for heating oil in the North East. Additionally, China’s encouraging Manufacturing PMI along with today’s upbeat UK economic data has investors optimistic about the prospects of the global economy as 2010 kicks off. The U.S. will release its own Manufacturing PMI figure later as well. An improvement in manufacturing implies an increase in demand for and consumption of energy, a positive development for the price of crude. Furthermore, last week’s political tensions in Iran coupled with a trade dispute between Russia and the EU are serving as positive psychological catalysts for crude futures. Meanwhile, investors should keep an eye on activity in the FX markets. Additional weakness in the Dollar and strength in gold could benefit crude futures due to correlative forces.
Technically speaking, crude’s movement above our 3rd tier downtrend line could be a key development since our 3rd tier runs through November ’09 highs. Hence, crude could be in for a retest of 2009 highs in the near-future. That being said, the psychological $80/bbl area has proven to be a tricky trading zone in the past. Therefore, crude may need more positive fundamental developments to send the future beyond 2009 levels. As for the downside, crude has multiple uptrend lines serving as technical cushions along with 12/29 and 12/24 lows. Additionally, the psychological $80/bbl level may now serve as a cushion should it be retested.
Resistances: $80.98/bbl, $81.39/bbl, $81.74/bbl, $82.75/bbl, $83.18/bbl
Supports: $80.45/bbl, $79.93/bbl, $79.23/bbl, $78.68/bbl, $78.05/bbl
Psychological: $80/bbl, $75/bbl, November and 2009 highs