Crude futures had no problem participating in yesterday’s strong rally in U. S. equities. Crude finally left the psychological $65/bbl level behind on climbing volume, stepping over our 2nd tier downtrend line in the process. The futures are presently walking along our 3rd tier uptrend line as they creep back into the June trading range while setting its sights on the psychological $70/bbl level. Crude futures may have a little more gas in the tank even though the S&P futures are waning after negative earnings from AMZN, AXP, and MSFT.

Crude futures hesitated during much of the S&P’s ascent over the past week, opting to consolidate around $65/bbl instead. However, now that the S&P has broken out, crude futures may be motivated to play some catch up. On the other hand, gains in crude may be limited by an appreciating Dollar since a stronger Dollar damages external demand.

Even though corporate earnings are starting to come in a little mixed, the earnings season has been cheerful overall. Improvement in U. S. corporate outlook implies greater consumption of crude in the future. In addition to the more positive outlook concerning demand, crude inventories have been declining on a consistent basis. On the other hand, declining inventories are being countered by an increase in Nigerian oil production due to the 30 day ceasefire with MEND. Hence, even though there are clear factors supporting a rising price of crude, there are counteractive supply and demand forces at work capping upward movements in price.

Meanwhile, we wouldn’t be surprised to see crude find strength in our 1st tier uptrend line with our 2nd tier downtrend line fading in the distance. This creates the environment for a retest of the $69-$70/bbl zone. However, investors should note any further key technical movements would likely require sizable gains in the S&P. The S&P futures have been on a tear as of late, and profit taking wouldn’t be out of the question. Additionally, the S&P futures have to deal with their psychological 1000 level next, and that probably won’t be an easy feat. As for the downside, crude futures build up a solid base around $65/bbl during their consolidation period and have our 2nd tier uptrend and downtrend lines serving as cushions.

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