Crude futures are stepping up from our 2nd tier uptrend line on a boost of buy-side volume despite weekly inventories coming in 100k barrels heavier than analyst expectations. Regardless of missing analyst predictions, crude inventories continue to decline. As we stated in our previous analysis, crude has been neglected for the most part during the S&P’s huge rally coupled with a broad depreciation of the Dollar. Hence, investors could be making up for lost time with the S&P futures trading just below their fresh 2009 highs.

Better than expected 2nd quarter earnings are aiding crude’s upward mobility since an improvement in corporate performance implies an increase in production, manufacturing, and consequently consumption of crude. However, the 30-day MEND ceasefire seems to be paying dividends with Eni SPA and Royal Dutch Shell taking actions which should increase production in Nigeria. Therefore, should stability in Nigeria continue, this could place a downward pressure on price due to the anticipated increase in supply.

Meanwhile, volume is picking up and bulls are taking interest in crude’s attempt to leave the psychological $65/bbl behind. Crude futures need clear July 8th highs again and our 2nd tier downtrend line. If crude can accomplish these two feats, we believe near-term gains could accelerate.

That being said, should the S&P futures decide to break free of their psychological 950 level and 2009 highs, then we believe crude would be inclined to participate this time. On the other hand, a near-term downward consolidation in the S&P could result in a similar behavior in crude due to their positive correlation. Fortunately for the bulls, our near-term supports are relatively tight with the 2nd tier uptrend line holding steady. 

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