By Financial Trader Research, published 2.9. 2007

Crude Oil Nears Key Supply Lines

Crude charged to new weekly highs nearing our model pivot points ($62.50 in crude, see scoreboard) and nearly vitiating the prior fundamental analysis.  But that is sophisticated political speak and you can get that anywhere, instead we call it what it is when it is... a 'bad call'.  You wont last long in the business otherwise, but you can get your own TV show.  

The question before us is whether it is a simple bear market rally, or a new bull market with respect to the commodity and its sister stocks that we are currently tracking from the short side such as Exxon, Chevron, and Valero. 

We believe that a bear market is still in place despite the recent price increases.

Bearish Stock Rationale

The fundamentals continue to show a healthy supply of crude oil as measured by the API reports and demand.  Recently, the market garnered impulse buying from the cold spell in the North-East, but it usually is cold in February.  We see the buying support as primarily psychological in nature, and too flimsy to overcome existing supplies.

There always exists the perennial political ramblings, and international threats posed to and by oil producing nations, as another fundamental support.  We understand the press needs to sell fictional stories, but everyone knows that the only real threat of an oil region conflict exists between Israel and Iran.  If that were to happen, we would likely see $200 crude oil, but that does not seem likely...today.  

With the fundamentals unchanged, let's see if the technical market structure might argue for a bullish reversal.

Technical Analysis

Prices Rise a Notch Above Supply Line

The weekly chart of crude reveals a slight rise above the supply line that we drew in our prior oil reports.  Markets have a habit of making everybody's analysis wrong just long enough to cause capitulation.

Conclusion: If prices can eat through the 60.00 to 62.50 supply area, our models will capitulate, but given the wild price swings, and soft support, lower prices still favor the bears.   

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