EIA raises oil price outlook in short-term

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Energy Outlook

With instability still prevalent in Libya and the fighting continuing between the opposition forces and those loyal to Gaddafi, the price of oil is hovering near the unchanged mark for WTI and modestly higher for Brent so far today. There were talks yesterday that Gaddafi's inner circle has debated his exit. However, the bombing of Libyan citizens continued for yet another day. NATO is also debating whether or not to institute a no fly zone with no resolution to that issue yet evident. Irrespective as to how Libya evolves for the rest of this week, many investor/traders are becoming more focused on what will be the outcome of the day of rage protests in Saudi Arabia called for this coming Friday. If it is a non-event and Libya looks like it is improving, oil prices are likely to be on the defensive. On the other hand, if there is any possibility that the protests in Saudi Arabia could grow into something like Libya or Egypt, oil prices will head higher and test the next WTI technical support level of around $110/bbl. For the moment, the current technical support level of WTI is around the $103.50/bbl level and holding.

The Brent/WTI spread was pounded yet again on Tuesday with Brent shedding another $2/bbl of its premium as the market was in full blow profit taking selling of the spread. The selling has backed off a bit overnight or since yesterday afternoon's API report showed a huge, surprise build of 3.8 million barrels in US crude oil stocks as well as another huge build in PADD 2 stocks of about 1.8 million barrels. If today's EIA report shows similar data, the Brent/WTI spread might not move to test the next support level of the spread of about $7/bbl premium to Brent just yet. On the other hand if the data is the least bit bullish for WTI, we can expect to see the spread breach the $7/bbl level and likely trade back down to about $4/bbl. Today's EIA inventory report will dictate the next major move for the spread.

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