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Oil Week: Oil slipped from 10-month high but still high
Written by article default Friday, 28 August 2009 12:32
After last Friday's spike when oil reached 10-month high above $74 a barrel as a result of upbeat U.S. existing home sales and as Federal Reserve Bank Chairman Ben Bernanke stated that the U.S. economy is heading into the right direction for recovering by the end of this year, oil continued its gains on
Nonetheless, oil prices started to retreat from 10-month high on profit taking by investors as prices had reached this high level. Also, prices plunged as the American Petroleum Institute released its weekly report showing that U.S. oil inventories rose to 4.3 million barrels last week. Having a rise in oil inventories indicated that demand is crippled, therefore reducing demand on oil as an investment.
Thereafter, the EIA report was released on Wednesday showing that U.S. commercial crude oil inventories increased by 0.2 million barrels from the previous week. At 343.8 million barrels, U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Total motor gasoline inventories decreased by 1.7 million barrels last week, and are in the upper half of the average range. Finished gasoline inventories increased while gasoline blending components decreased last week. Distillate fuel inventories increased by 0.8 million barrels, and are above the upper boundary of the average range for this time of year.
The EIA report showed that crude and distillates inventories declined while gasoline inventories slightly fell. The incline in crude oil inventories in the world's largest crude consumer provided evidence that global demand is still weak despite the rise in oil prices witnessed recently.
But starting from Thursday, oil began to incline again on optimism in markets after the release of better-than-expected consumer confidence and GDP in the U.S. which revived hopes the economy is recovering. The upbeat data released this week gave support to oil.
On the other hand, the fall in the U.S. dollar against majors at the end of the week helped oil to rebound close to its highest level in 10 months. The drop in the dollar enhanced demand on dollar-denominated commodities especially oil. The dollar index, a measure of the dollar's value versus a basket of major currencies slipped to 77.98 compared with the high of 78.82 reached on Tuesday.
U.S. and Asian stocks inclined most of the week on cheerful earnings by large companies and upbeat data from large economies which increased investor's risk appetite.
Oil in the coming period with the ongoing improvement in world economies may incline further, but it may face downward pressure as it approaches $75 as high prices may encourage investors to sell the product and lock in profits.
Technically speaking, Oil has been controlled by dramatic movements that pushed it to approach our detected technical target at the psychological level of $75.00 a barrel, followed by a panic sell-off that lead it towards the lower line of the bullish channel maintaining levels below 70.00, where it found solid support that pushed to make correctional movement as seen on the above four-hour chart. Now, we think that the Fibonacci expansion level of 100 has obtained further strength that may add strength to the mentioned psychological level. Therefore, we think that the contract is to move to the downside over short term basis, particularly if it succeeded in penetrating 70.00 once more as this action can activate a breakout below the lower line of the ascending channel, opening the door for further bearishness, targeting 67.25 zones.