Fundamentals

Crude Oil futures are holding firm near the $78 a barrel mark, aided by a slightly weaker Dollar and cold temperatures. The cold blast that has hit much of the US suggests that demand for heating fuels, such as heating oil, may rise. Energy traders have been greeted with solid economic data recently, most notably a better than expected initial claims figure, which shows the lowest unemployment claims in nearly 15 months. Traders may take this with a grain of salt, as many employers are less prone to lay off employees during the holiday season. If the contraction in the labor market does subside during the new year, it could give Oil a significant boost. The market does still appear to be oversupplied at the moment, which coupled with a strong showing for the Dollar, could reign-in rallies. Supplies, however, have come down to the lowest level since the Jan 9th EIA report, suggesting stockpiles are being worked down. If economic conditions do improve significantly, there is a genuine risk of a supply squeeze in 2010. The long-term fundamental outlook has improved significantly due to inventory levels being worked down and economic conditions improving. A setback for the Dollar could spark significant rallies in Oil prices. A stronger greenback could, at the very least, keep Crude Oil prices in check or could cause prices to correct.

Technical Notes

The Feb Crude Oil chart shows prices rebounding sharply after coming down to the $70 level. Prices are now flirting with resistance at the $80 level, which may be a stumbling block for prices in the near-term. A significant close above the 81.37 level could signal a new breakout and would suggest prices could make a run at 88.71, which is the next area of solid resistance. If prices are not able to make a run above 80.00, prices could be caught in a range between 70.00 and 80.00 for the foreseeable future. The stochastics show an overbought reading and the RSI is getting close to overbought levels as well, hinting that prices could face pressure in the near-term.

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