Fundamental Oil Report (2011-06-08)

News EIA Report
Previous 2.9 Million Barrels
Forecast -1.3 Million Barrels
Analysis Crude oil futures continue the volatile trading with a clear downside bias this morning as investors brace their focus on the Vienna OPEC meeting and chances for production increase. Crude oil is currently hovering around $98.26 a barrel at its intraday lows from the opening levels of $99.62 per barrel, where t recorded the high at $99.77 a barrel. Crude returned to the downside following yesterday's gains in a temporary correctional break as the contract ended higher at $99.63 a barrel from opening levels of $98.75. We can see the biggest pressure on crude for today is the outlook for the OPEC meeting and projections for supplies increase. The Organization of Petroleum Exporting Countries is expected to raises its output target today for the first time since 2008 mainly to compensate for the lost supplies from the MENA unrest, especially Libya, and stem the rally in prices that raised inflation across the globe and undermining the recovery. Fears over the adequacy of the supply opposed growing demand is a major conflict among the organization's members. Saudi Arabia has been the arch supplier and compensated most of the lost supplies from Libya, yet crude maintained its rally on the back of the tension in the Middle East and North Africa, the weak dollar, and the status of growing demand on the recovery. Nevertheless, with the dollar still mixed, debt woes mounting, inflation pressures raging, and the compensation of crude output from OPEC, oil is likely to remain pressured to the downside for the coming period and stem the upside rally seen that took crude to as high as $114.82 a barrel at the beginning of May and started trend from then till now to stabilize below $100 a barrel. Bernanke yesterday assured the critical state of economic conditions in the United States as he called the recovery "frustratingly slow" which warrants continued monetary support and stimulus from the Feds before the economy can pick up the pace in the latter half of the year. The Feds Chairman signaled the readiness for enacting more stimulus measures, signaling to markets the possibility of the third round of quantitative easing, supporting our overall assessment for the overall bullishness to prevail for crude till the end of the year after we exit this rough patch of the recovery. Further downside pressure on crude is seen from the continued rise in U.S. inventories and the volatility in demand from the world's biggest consumer. The volatility is expected to prevail today ahead of the OPEC decision, while the dollar's movement and the EIA report are further support for crude till now that can step the losses. We can see that the dollar started the day with gains and likely will return to its fragile status once the correctional move is over and investors lock their focus again on the pledges from Bernanke to do all it takes to support the recovery and introduce more stimulus. The dollar index is currently trading around 73.63 recording the low of 73.50 and the high of 73.71 from opening levels of 73.51. As for the EIA report, expectations are for the Energy Department to report a drawback of 1.3 million barrels in commercial crude oil inventories following 2.9 million barrels buildup the previous week. While on the other hand, expectations are for gasoline stockpiles to have increased by 1.05 million barrels. The data follows the reported drop in crude inventories by 5.5 million barrels from the API yesterday much beyond expectations and support for crude to move higher. We maintain our expectations for strong volatility today and mixed trading with the general downside bias still intact. The OPEC decision will be the biggest weight on crude while the dollar's softness and a strong drop in oil inventories might help sustain some of crude's losses.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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