Crude ended up this week on short-covering as a potential storm threatened to disrupt oil production in the Gulf of Mexico. In the Gulf of Mexico, the largest U. S. offshore oil port and Murphy Oil Corp. began evacuating non-essential personnel from their operations, ahead of a potential cyclone. The news sparked more shortcovering in late Friday trading. The U. S. National Hurricane Center said a low pressure system in the Gulf, home to 20 percent of U. S. oil production and 6 percent of natural gas output, had a 70 percent chance of developing into a tropical cyclone over the next two days. While oil demand prospects are dimming, supply of oil remains ample. The Organization of the Petroleum Exporting Countries is pumping about 1.6 million barrels per day (bpd) more than the demand for its oil and its own supply target, OPEC figures show. Much of the extra oil has come from top exporter Saudi Arabia, as well as from an export capacity expansion in Iraq and a recovery in Libyan output. At its meeting last week, OPEC agreed to keep its oil output limit at 30 million bpd, with several members urging the Saudis to cut back supplies to reach the target.
This week we have seen crude oil has broken below the 80.00 level on the back of unexpected rise in US crude oil inventories coupled with escalating European debt crisis. Additionally, a stronger DX also acted as a negative factor for the commodity. With the FOMC lowering the US growth forecast and the Chinese HSBC PMI showing a continued slowdown in Asia, the demand for crude has been reduced. The overall market sentiments turned sour after the US Federal Reserve stopped short of introducing any further aggressive economic stimulus measures as widely anticipated and revised down the economic growth estimates to 1.9-2.4 per cent from 2.4-2.9 per cent. However, the US central bank decided to go ahead with the `Operation Twist'. Worries over the global economic growth triggered sell off in commodities and equities. Spot gold declined for the third consecutive day. However, lower level buying and safe haven appeal provided cushion to falling prices. Disappointment over the Fed staying back from providing additional stimulus measures amid worries over euro zone debt crisis dragged down base metals and crude oil too. Weak Chinese manufacturing PMI data added further pressure over the market. Crude oil in Nymex was hovering near eight month low while Brent crude oil hit 18-month low. Surprise build in crude oil inventories and gloomy economic outlook drove prices south.
Crude oil and other risk assets fell sharply this week as fears of slowing global growth gripped markets, which were also beset by speculation about pending bank downgrades and Europe's sovereign crisis. But the price of oil has a separate significance in that it is an important lever on the world economy, and its decline could help consumers.
Crude prices have fallen 30 percent from their March highs as oil production globally rose to a record level in May, according to the International Energy Agency. The world is now pumping 91.1 million barrels per day, the most ever. OPEC production, at more than 31.5 million barrels in May, is also higher than normal. Majorly crude was trading under pressure after the fact that Federal Reserve did not announce a new easing program supported the dollar. Also weak manufacturing data in China and Europe, and a series of disappointments from U. S. jobless claims to the Philadelphia Fed survey, added to the "risk off" temperament of markets Thursday. In fact, traders say the months-long decline in oil may have been signaling a slowdown in the economy. Market focus Friday will remain on Europe as finance ministers meet, and the leaders of Germany, France, Italy and Spain meet ahead of next week's EU summit. Some of the Iranian oil has already been taken out of the market and the drop in oil prices is also pinching Iran, which has been engaged in talks with a group of six nations on its nuclear program. So far, Iran refuses to abandon its uranium enrichment program, denying it is seeking to develop nuclear weapons. The Iran situation remains a wild card for oil prices. While OPEC affirmed last week that it would hold production at 30 million barrels a day, production of oil elsewhere has increased.
Technical Outlook: Crude is getting support at 4515 and below could see a test of 4427 level, and resistance is now likely to be seen at 4653, a move above could see prices testing 4703.
ACTION: SHORT TERM JUMP CAN BE SEEN LOOKING TO HURRICANE UPDATE AND TECHNICAL CHART BUT 4700 WILL BE GOOD TO TAKE SHORT ONCE AGAIN FOR SUPPORT TILL 4500-4220 LEVEL IN MEDIUM TERM.
- Oil firms falls as government considers export parity pricing model
- Essar Oil to sign $1 billion financing co-operation deal with CDB
- ONGC may sell stakes in deep-water blocks to Shell
- Huge scope for improving Indian shale gas estimates: ONGC
- HPCL Visakha refinery suffers major fire due to short circuit