Crude oil prices were challenged hard today when the on-again/off-again production freeze from Saudi Arabia, Russia and a coalition of OPEC countries was dismissed by Saudi Oil Minister Ali al-Naimi, who stated yesterday that the proposed production cap would not lead to an eventual output cut.

Al-Nami insisted that higher cost drillers will need to find a way to become more efficient, borrow cash, or liquidate – suggesting that this so-called production freeze is not expected to make any difference in crude oil prices going forward.

It also didn’t help that Iran’s Oil Minister Bijan Zangane indicated that Iran would not be joining the proposed output freeze.

Following yesterday’s 3.2% drop in oil prices (to $31.87 a barrel), early morning selling pressure continued to push crude oil April deliveries to a low of $30.56 a barrel before the markets reversed on a report from the US Energy Information, showing heavier than expected drawdowns for the commodity last week.

The Department of Energy reported a gasoline inventory draw of 2.236 million barrels compared to the forecast 1.033 million barrel draw. With the report also showing an expected build in crude oil, the increased demand from gasoline usage helped spark a rebound in crude oil prices as the commodity rallied of its session low of $30.56 a barrel to end its day higher by 1.3% at $32.15 a barrel.

Bottom line, crude oil prices once again survived the $30 support test level and now faces another close test of resistance at the 50-day moving average – only 2% away.

A failure to climb above the 50MA will likely ensure that oil prices and equity prices will make another short-term correction. An advance above the 50MA should help the equity indexes do the same and bring another week or two of bear market rally conditions. We are that close to a short-term tipping point.

Home Sales Falter

Meanwhile, traders largely shrugged off a report from the Commerce Department showing a much bigger than expected pullback in new home sales for the month of January.