The price of crude oil retreated from recent highs last week after struggling at the $80.00 to $81.00 technical resistance barrier fueled by rising inventories, weak demand, and lower consumer confidence. Prices penetrated the lower end of the wide $76.00 to 81.00 congestion band, posting a monthly low at $75.55 before closing back above $76.00. The front month December contract settled at $76.35, down 1.4 % for the week.

The DOE reported builds in inventories across the board last week with crude gaining 1.76 million barrels, 7.7% higher than the five-year average. Gasoline stocks rose 2.56 million barrels and distillates gained 349,000 barrels, 4.8% and 29% higher than the five-year average respectively. Refineries operated just below 80% at 79.9% compared to the five-year average of 87.1% for this time of year, reflecting weak consumer demand. Crude imports were up and gasoline and distillate demand were down according to the report.

Strong equities and the weak dollar likely kept oil prices from breaking down from the $76.00 to 80.00 congestion range with the Dow adding nearly 250 points last week to close at 10270 . The S&P added 25 points to finish at 10914. The dollar index fell 0.4% to 75.303 after hitting a 15-month low earlier in the week.

Crude Oil Weekly Chart


The market is mainly in a sideways/lower flagging pattern with both the 4 and 5-week downtrend Channel's sliding down to $80.00 to 80.30 on the top and $75.00 on the bottom. With trade managing to close on the 38% Fibonacci Retracement point of 2008 at $76.35 last week, and with options expiration on Tuesday, the market has spiked to start things off this week. Expect to see volatile trading early this week between the key extremes at $80.00 to 81.00 and 76.00 to 75.00 with open interest high at 22,000 in the $80.00 strike indicating prices will lean that way. The key however, will be to either maintain settlements above $80.00, or breakout above $81.00 to generate the next bull move initially targeting the year high at $82.00, then on towards $85.00 throughout the week which marks the top of the 5-month uptrend Channel. A close on a new yearly high for the week above $82.00 will bring the 50% Fibonacci Retracement level of 2008 into play at the $90.00 mark in the coming week.

On the downside, keeping a close watch on activity around the $80.00 to 81.00 Resistance band, failures to generate settlements above $80.00, or failures to breakout of the range above the November high at $81.06, alerts for a turn back down towards the $76.00 to 75.00 key support base. The $75.00 mark consists of the lower 4 and 5-week downtrend Channel's and the 4th Quarter upside breakout. Trade through there will have a significantly bearish impact on oil targeting the 3-quarter and major 10-month uptrend lines from 2009 lows at $73.35 down to $70.00.

Price Headley is the founder and chief analyst of BigTrends.com.