By LM Lupo 4.2.2007

Crude Oil Fundamental Analysis Brief

After tracking crude oil prices from the short side of the trade since August of last year, the models turned bullish last week with a close above our $62.00 stop based on the West Texas Intermediate cash market.  Despite the somewhat bearish supply and softer demand constructs, the price action simply overwhelmed even reasonable bearish arguments--if markets are ever reasonable.

The media bandied about the Iranians as the causal agent, but there is likely more under the surface than a story of a few hostages captured by a country that is renown in capturing western citizens, whether military or not.   China demand is probably the culprit for higher crude oil prices, but that is speculative for now.

Of note, Valero rolled off of our sell list as did the crude futures contract with an update here.  Exxon (XOM) and Chevron (CVX) remain on the oil sell list similar to the way Newmont did despite the rising price of gold futures, and our bullish forecast.  If crude garners significant support at the $60.00 price level CVX, and XOM will also roll off the the stock scoreboard.

Technical Analysis

It is easy to see why WatlooSoft© pegged the $62.00 price to prompt the close of the crude short positions.  As the chart below reveals, it represented an area of significant supply that once removed from the market acted as a springboard to higher prices, much the same way as when the market originally broke down through $62.00.  See our earlier report on the technical saucer pattern and analogy.

Support for the crude market rests at $60.  A weekly close below this price would turn the market somewhat bearish to neutral.  The next few weeks should see mildly higher crude prices with some consolidation after the break out from the $62.00 price resistance.  There now appears to be a convergence of several major commodities starting fresh bullish legs including the metals, and soon the grains. 

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