Oil finds support near $86 after sell off

It is the Principle and the Precedent

Oil Prices look like they found support around $86.00 as I expected. After the massive sell-off because of the fears of a global slowdown and massive U.S. supply, oil could start rebounding on the more mundane seasonal and refinery factors. Bloomberg News reported that "Commodity prices are set to fall 2% this year from 2012 amid increased supplies of raw materials from crude oil to grains, the International Monetary Fund said.  Energy prices probably will decline almost 3% as supply rebounds from outages last year, the Washington-based IMF said today in an online report. Food prices will drop more than 2% on increasing world harvests, while metals may climb more than 3% on recovering world economies and increasing demand in China, the report showed.

An IMF index of commodity prices is down 9% from a peak in April 2011 while still "elevated compared with historical levels,” according to the report. The Standard & Poor's GSCI gauge of 24 raw materials climbed for a fourth year in 2012 as drought in the U.S. lifted corn and soybean prices to records and dryness in Russia and eastern Europe boosted wheat. "The near-term outlook for commodity prices, as reflected in futures prices, shows broad declines across all main commodity groups, including oil,” the IMF said. "Recent declines in commodity-price volatility reflect improvements in global financial conditions.”

The GSCI has dropped 6.2% this year, compared with a 5.2% increase for the MSCI All-Country World Index of equities and Treasury returns of 0.5%, according to a Bank of America Corp. index. The IMF said its commodity index is up 12% since bottoming in June.

Oil production in nations outside the Organization of the Petroleum Exporting Countries probably will increase by 1 million barrels a day in 2013, "slightly exceeding the growth in demand” and pushing prices lower, the IMF said. Non-OPEC supplies rose by 600,000 barrels a day last year, primarily from the U.S., Canada, China and Russia. "We should get some support from the American Petroleum Institute report that showed that U.S. crude stocks actually fell by 6.7 million barrels. Gas stocks also increased by 253,000 and distillate stocks rose by 1.3 million barrels.

As far as Natural gas the IMF said that "An index of natural-gas prices may "edge higher” this year, led by rising costs in the U.S., the IMF said. Liquefied natural gas in Japan may drop as nuclear-power generation climbs and coal is expected to decline because of environmental restrictions.”  We have seen that as Natural gas in the U.0.S continues to work higher. In a world of plunging commodity price natural gas has moved in the opposite direction.  Nat gas has acted that way in other oil sell-offs as the play is short oil long gas in cases of commodity weakness. That as well as the improving demand outlook for natural gas should continue to make this market the darling of the commodity funds.

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