Crude Oil Market Analysis on Strong Crude Oil Futures

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Crude oil market has been hanging around the upper end of its two month range for four weeks. Some traders are blaming algorithmic or high-frequency traders for holding prices up at these levels. Even with a solution to the Euro Zone crisis on paper, bearish traders believe that following a short-term impulsive spike to the upside, prices are likely to come down due to the massive debts in Europe. Traders are expecting a drop in demand and consumer spending along with slashes in government spending to trigger a new recession.

Crude Oil futures had a strong surge on Friday, but still managed to close lower for the week. Renewed buying helped prices rise for the first time after three consecutive lower-lows. News that the European Union was close to reaching a possible solution to the Euro Zone crisis triggered the turnaround in prices.

Crude oil traders will be watching for a follow-through rally this week following Friday’s late session surge. They are likely to take their clues from the Euro and the equity markets. If these markets rise, then this will serve as a sign that traders are willing to take on additional risk. It may be too early to tell when traders will begin pricing in a European recession, but what is clear is that if the support cluster at $95.36 to $95.29 on the weekly chart fails then the market may take a hard hit.

Brent Crude Oil in London finished 53 cents higher, but West Texas Intermediate rose a lofty $1.07. Despite the strong showing on the daily chart, the weekly chart indicated a slightly lower trade. This was not enough, however, to reverse the market’s course. Brent had an almost identical day on Friday as the markets are all correlated for the “risk on” trade now. The range is still intact, and we think that there is a little bit of upside momentum that will allow for scalps, but the upside is probably limited to the $112.50 mark. Once we get there, we would be willing to take profits.