Give the fundamental supply/demand situation, I still expect prices to be moving higher. But right now, we're seeing the standard issues of prices moving through a large number of technical resistance levels on their move higher, which is to be expected given the chart.After selling off about a month ago, prices have slowly moved higher. But they have encountered resistance as they have hit important technical levels such as Fibonacci levels and EMAs. Let's take a look at the charts:
The above chart shows that prices consolidated between 99 and 100, but then sold off yesterday.
Prices were in a rally and did move through the EMAs. However, notice the candles over the last few days -- the days when prices were above the EMAs -- were weak, indicating there was little demand pulling prices higher. Also note the strength of yesterday's bar moving lower, which was quite strong. Finally, the MACD is about to give a sell signal.
Yesterday, all speculative commodities took a hit as the markets started to seriously consider the possibility of a US default. Right now, this trumps the overall supply and demand situation. Should a default occur, expect prices to move lower, as a default will slow economic growth and thereby lower overall demand. However, if a default is avoided, expect the upward trajectory to continue.
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Higher oil prices remain a big problem for the recovery. Once oil stops flowing out of government strategic reserves, oil prices should head higher. Oil prices should remain higher because there is little chance that the civil war in Lybia will end soon.
Nevertheless, the job market improved last week. This may show that the economy has a lot of potential to improve over the coming months. However, the debt ceiling crisis, upcoming austerity programs and of course higher oil prices will be a drag on the economy.
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