Crude oil inventories came in shallow yesterday for the 6th time in 7 weeks, giving a boost to the futures despite the mixed performances of equities and the greenback.  Crude continues to log larger volume on the 1-hour up-bars, and the upside is gaining momentum as the futures look to retest $70/bbl.

It seems the reduction in production by OPEC is more than compensating for the perceived decline in consumption due to mixed economic data reports from the U.S. and EU.  As a result, crude is building up quite a bit up upward mobility, particularly if U.S. equities turn around and the Dollar depreciates.

The tests beyond the psychological $70/bbl will be our downtrend line and 2nd tier uptrend line.  If Crude can climb beyond these obstacles on considerable volume, the commodity's uptrend could come back alive.  However, the directional performance of crude should ultimately depend on the fate of equities and the Dollar.  

Crude may have to give into the bears if the S&P buckles under the pressure of present negative market psychology and the EUR/USD and GBP/USD follow suit.  Negative performance in equities implies lower expectations of corporate performance, higher unemployment, and consequently a lower rate of consumption of crude.  

Speaking of unemployment, weekly unemployment claims showed a surprise rise, making crude's current positive performance all the more impressive.

Overall, investors should watch the techincals and fundamentals of the S&P futures, GBP/USD, and EUR/USD.  All three indicate a heated battle between the bulls and the bears.

Crude should exhibit a positive correlation with these other investment vehicles once investors do make a directional decision.  We anticipate volatility to remain elevated for the near-term as investors make up their minds.   

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