Dian L. Chu: Next Major Resistance $87 a Barrel

Crude Oil hit a high of $84.09 on Thursday morning before investors sold into the rally in all commodities before the volatile jobs report on Friday morning. The shorts pushed Crude to a weekly low of $80.30 early Friday morning, which was a nice buying opportunity, as Crude Oil closed the electronic session on Friday at $82.84.

After the jobs report came in within expectations, there was substantial fund buying back in all the commodities across the board with the thought that the still weak job market mandates the Fed to start the QE2 Program in a serious manner.

So, Crude basically went from $76 a barrel to $84, as it was under subscribed by fund managers at the $76 level before the product`s inventory levels started to show declines due to lower refinery utilization rates and a pickup in demand on the Distillate side.

The pending jobs report supplied the expected pullback, and now Oil is trading at just below the $83 level. It should test $85 before Wednesday of the upcoming trading week, as the rush back into commodities after the jobs report indicates that this inflation trade still has some major support and legs by investors.

If Crude breaks $79 to the downside then obviously the risk trade is being taken off by investors.....See Dian's Crude Oil Technical Charts.



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As Crude Oil Climbs, Expect $100 per Barrel by January, 2011

From analyst Dian L. Chu.....

Last week the shorts were all lined up for another bearish inventory report for Petroleum products from the EIA, but lo and behold, miracles do actually occur. We had an extremely bullish report (Fig. 1) which caught a lot of traders poorly positioned, and many fund managers underexposed to the commodity, which relative to Gold, Silver, and Copper, smelled like a bargain in the face of further quantitative easing expected by the Federal Reserve in the 4th quarter.

The technicals indicate that upward resistance will not be found until the $84 per barrel level, so despite Crude Oil moving from roughly $75.60 before the report on Wednesday morning to close Friday`s electronic session at $81.73, a $6.13 move in 3 days, there is still more room to go for this upward move in the commodity. (Fig. 2)

The real surprise in the report was the large drop--3.5 million barrels-- in gasoline inventories, and the RBOB contract needed to re-price itself given this change which was largely due to lower imports on the supply side, as demand for gasoline is still relatively anemic year on year.

Distillate demand has recovered strongly over the last 6 weeks from the lows of the summer (Fig. 3), and is quite robust year on year, and a great sign that the double dip scenario is officially off the table. Remember, that distillate demand represents usage from the industrial and manufacturing sectors of the economy, which will be the first indications of potential economic strength or weakness.....Read the entire article.

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