Oil pushes over $97/bbl

[dan_s]

WTI is still hovering near the upper end of the upward trading channel that has been in play since the beginning of this year. The spot WTI contract is also gaining momentum on Brent as the March WTI/Brent spread has now retraced about $0.70/bbl since peaking after the Seaway pipeline constraint news hit last Wednesday. The spread has narrowed back below the $17/bbl technical support line (now resistance) and seems poised for a further correction to the downside as the Seaway situation seems to have moved out of the foreground for the moment.

On the economic front yesterday's durable goods data from the US was very positive beating the previous month as well as the market consensus. The reaction was dampened by an underperformance on the housing data side. Today the US Central Bank will start its two day January FOMC meeting with the meeting announcement due out tomorrow mid-day. The market is currently expecting the Fed to remain status quo on their short term interest rate and quantitative easing policies. However, the market is much more interested in the comments as to see if there are any signs as to when the Fed will begin to move to a less accommodative monetary policy. More and more of the market participants are expecting the Fed to slow down its massive QE bond buying program as many also view the US economy as starting to recover at a better pace than last year. If that is truly the pattern of the economic recovery in the US the Fed will have to begin to shrink its balance sheet as the susceptibility for inflation will certainly rise if they do not.

Barring the Washington politicians completely screwing up the sequester negotiations as well as the US budget and fiscal cliff over the next several months the US economy does look like it is gaining momentum. If so I think the Fed will be forced to start not only thinking about an exit strategy but also making it know to the market. If this turns out to be the scenario it would be bearish in the short term for oil and most major commodity markets as it will signal that the Fed will not let inflation turn out to be the next major economic hurdle in front of the US economic recovery. With the Fed's policy also tied to the US employment situation we could get another sign on Friday when the monthly US nonfarm payroll data is released.

[dan_s]

The two year chart for WTI looks very encouraging. There is resistance at $98 and at $100. It WTI can break over $100/bbl then there is very little resistance until $108.

There is support at $90, stronger support at $87 and VERY STRONG support at $82. The trend is definitely pointing up.

"March crude oil prices trended higher throughout Tuesday's trading session and climbed to their highest level since September 18th. Early support for the crude oil market came from positive German consumer sentiment readings and data that showed a larger than expected gain in November US Home Prices. Further gains in US equity markets and weakness in the US dollar were seen as an added source of support. Some traders also noted a measure of short-covering activity during the session that might have provided a further lift. Expectations for this week's EIA inventory report are for a build in crude supplies last week in the range of 2.5 million barrels."