Key support and resistance
Crude oil prices increased $4.84 per barrels from the closing on Thursday, April 2, 2015. The prices increased by almost 10%. Prices surged by short covering. There’s a possibility of profit booking. Prices could fall because crude is trading just below the key resistance of $54 per barrel. Crude oil prices hit this mark multiple times in February and in yesterday’s trade.
The current bullish momentum could cause crude oil to breach $54 per barrel. However, the fundamentals suggest a different story. Factors including the oil glut market, strong dollar, Iran lifting sanctions, and the consensus of an increase in inventory levels could drag down oil prices. The key support for oil is seen at $46 per barrel.
Lower oil prices will increase demand from Asian majors like China and India. The demand could also increase when Chinese refineries return after the repair and maintenance period. Slowing production consensus from US, due to a continually falling rig count, might support the oil prices. However, the drop in the rig count never shows the real picture.
Crude oil prices are trading above their 20 and 50-day moving average. However, prices are below the 100-day moving average of $55.75 per barrel. The RSI (relative strength index) is at overbought territory. The price tends to correct from these levels. Crude oil prices broke the neckline of the inverted head and shoulder pattern in the yesterday’s trade. This breakout signals that prices could hit $60–$62 per barrel.
The rise in oil prices also saw energy ETFs like the SPDR Oil and Gas ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) gain marginally. Higher oil prices means lower margins for oil and refining stocks—like Valero Energy (VLO), Tesoro (TSO), and Phillips 66 (PSX). These stocks account for 8% of XLE.