Crude oil and those speculators

Market Pulse: Dec. 13, 2010


Crude oil prices rallied to a 26-month high of $90.76 a barrel and have now retraced just over half (51%) of the two-year plunge from the July 2008 all-time high of $147.27 to the 6-1/2 year low of $32.40 in December 2008.

Bullish factors include:

  1. The rally in global equity markets which improves confidence in the economic outlook and energy demand.
  2. The larger-than-expected decline in weekly crude oil inventories (-3.82 million bbl vs. expectations of -1.5 million bbl).
  3. The DOE’s hike in its crude oil price estimate for 2011 to $86.08 a barrel from last month's forecast of $85.17, along with its 80,000 bpd hike in U.S. oil consumption forecast for 2011 to 19.24 million bpd from last month's forecast.

Bearish factors include:

  1. A possible imminent interest rate hike by China, which may slow its energy demand (DID NOT HAPPEN THIS WEEKEND).
  2. The unexpected increase in weekly gasoline and distillate supplies (gasoline +3.81 million bbl vs. expectations of a -300,000 bbl draw and distillates +2.15 million bbl vs. expectations of -900,000 bbl).

Fundamental OutlookMedium-term bullish — Crude oil prices rallied to new highs and the medium-term outlook is bullish on increased confidence in the global economic outlook and energy demand combined with the recent decline in U.S. petroleum inventories. Prices came off their highs, however, due to the unexpected increase in weekly gasoline inventories and the ongoing European debt crisis. Despite the high levels of crude oil and product inventories, OPEC kept its production quotas unchanged when the cartel met on Dec. 11. OPEC members appear to be fully on board with an upward revision in crude oil’s trading range now that the global economy is in better shape.



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