Morning Futures Roundup

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Will $100 Oil be in the Cards for 2011?

 Fundamentals

Crude Oil futures look to end 2010 near the yearly highs, as traders bid-up the price of "black gold" on the belief that improvements in the world economy will increase Oil demand in 2011. The 4th quarter of 2010 has seen U.S. Oil inventories fall from 27-year highs, with over 20 million barrels of Crude taken from storage in December alone. Continued strong demand from China and other Asian nations has kept a floor below Oil prices for most of the year, and now that there are signs that U.S. Oil demand is improving, prices look to close the year near the $90.00 per barrel level. The Oil market rally ran into a bit of a headwind on Thursday, after the EIA Energy Stock report showed that U.S. Crude inventories fell by a lower than expected 1.258 million barrels last month. Many traders were expecting a much larger 2.8 million barrel decline, and this "disappointment" led to a round of profit-taking selling, which sent front month February Crude below $90.00 to end the session. As we move into 2011, many traders will continue to focus on whether Chinese Oil demand will remain robust, despite efforts by the Chinese Government to cool its surging economy, as well as whether the recent decline in U.S. Oil inventories was merely an anomaly tied to "tax strategies" by refiners or the result of actual increases in domestic demand tied to improving economic conditions.



 Technical Notes

Looking at the daily chart for February Crude Oil, we notice prices correcting sharply on Thursday, after the EIA report showed a less than expected decline in U.S. Oil inventories last week. This "catalyst" likely caused weak longs to exit the market ahead of the New Year, and given the lower liquidity seen in the market, the sell-off may have been overdone. Prices are now trading near the 20-day moving average, and momentum, as measured by the 14-day RSI, has moved lower to a more neutral reading of 53.85. Support for February Oil is seen at 87.43, with resistance found at the contract high of 91.88.

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