Crude futures have rebounded from session lows despite weekly crude inventories coming in above analyst expectations at 1.7 million vs. 0.9 million expected. Crude’s positive reaction to the news is a bit puzzling considering the ADP non-farm employment change number came in below analyst expectations. The setback in unemployment lowers the outlook for consumption and demand for crude.

Perhaps investors are encouraged by the decline in inventories from last week’s surprise surplus of 5.1 million barrels. Additionally, the rapid depreciation of the Dollar against both the Pound and Euro increases export demand for U. S. crude, limiting downward movements in price. Either way, the resilience of crude is encouraging, giving the futures an opportunity to build a new base above the psychological $70/bbl level.

The medium-term momentum is clearly in crude’s favor with the economic recovery growing globally. However, crude faces some near-term headwinds in the form of our
3rd tier downtrend line and June 30th highs. Crude’s present obstacles to the upside coincide with the S&P’s battle with its highly psychological 1000 level. Therefore, further immediate-term downward sloping consolidation isn’t out of the question. Investors should also keep an eye on the GBP/USD and EUR/USD, monitoring the Dollar’s ability to depreciate further. On the other hand, if the S&P futures can overcome 1000 in a convincing manner, this may be enough to propel crude futures beyond their previous 2009 highs.

All eyes will be on the ECB and BOE monetary policy decisions tomorrow. If either actions appreciate/depreciate the Dollar, crude futures should act according to their positive correlation with both the EUR/USD and GBP/USD. Investors will also be looking for weekly U. S. unemployment claims to remain under the 600k mark. Any movement above 600k could place downward pressure on crude futures. As for the downside, crude has our 1st and 2nd tier uptrend lines along with the psychological $70/bbl to fall back on.

Present Price: $71.19/bbl

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