The crude business of crude oil

Market Pulse: Feb 13, 2012

Fundamentals

Crude oil prices are trading modestly above their recent 1-1/2 month low but below $100 a barrel. Bearish factors include:

  1. 1. The larger-than-expected increase in weekly DOE gasoline supplies to their highest level in 11 months (+1.63 million bbl to 231.8 million bbl).
  2. 2. The action by the U.S. Energy Department to cut its 2012 U.S. gasoline demand forecast to 8.71 million barrels a day, down -30,000 bbl from a January projection of 8.74 million barrels a day.
  3. 3. Concern that U.S. fuel demand may remain constrained after Fed Chairman Bernanke said the U.S. has "a long way to go before the labor market can be said to be operating normally.”
  4. 4. A report from the IMF that warned economic growth in China, the world's second-largest consumer of crude, may be cut in half if the European debt crisis worsens.

Bullish factors include:

  1. 1. The fall in the U.S. Dollar Index to a two-month low, which boosts investment demand in commodities.
  2. 2. Carry-over support from a rally in heating oil to a nine-month high as the extreme cold snap in Europe boosts the prospects for increased U.S. exports of heating fuels.
  3. 3. Geopolitical concerns after a Washington Post article said U.S. Defense Secretary Panetta believes there is a strong likelihood of an Israeli military strike on Iran by the end of June to thwart Iran’s nuclear program.

Fundamental outlookNeutral — Crude oil prices rose modestly above their recent 1-1/2 month low and turned the trend to neutral on dollar weakness and possible increases in heating fuel exports to Europe. Oil prices also remain supported by U.S. economic strength and geopolitical concerns with Iran’s threat to preempt a European oil embargo by cutting off supplies to Europe. Medium-term bearish factors include:

  1. 1. Increased OPEC and record Russian crude output
  2. 2. Global economic concerns
  3. 3. The resumption of Libyan production.

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