Oil climbed higher yesterday after U.S. crude oil inventories declined by 3.9 million barrels from the previous week. This marked the first decline since January and helped the commodity advance above $60.00, which was last week’s key resistance level. Oil’s rise made a high at $62.58 yesterday and now has settled around the $61.00 region.
Oil is in the midst of a strong rebound and partial recovery after a major pullback with the US dollar supported oil’s reversal from its record drop. With rig counts dropping 21 weeks in a row and US companies reducing the active rig count to the lowest level since September 2010, expectations are growing for output to slow (this could be very bullish for oil prices).
If oil prices continue to rebound, major resistance could come from both the $65.00 level and longer-term bearish trendline. A close above the noted level could open the door for a run towards the $70 handle.
If we do see oil prices slump here, we could see price target the $57.50 level. Deeper support could come from 50-day SMA, which is currently trading at the $52.00 region.
The trade: Buy oil at $60.50, with a stop loss at $58.50 and take profit at $64.50. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading