Fundamental Oil Report (2011-09-20)

News Oil starts the day with heavy fluctuations after strong losses
Analysis Crude oil is fluctuating heavily this morning and choppy mixed trading is evident with oil currently recovering the early losses in Asia. Fears over growth and the debt crisis in the euro area are weighing on the sentiment and affecting crude especially after Asian markets suffered the news of Italy's downgrade. Crude oil futures for November settlement rebounded to trade around $86.33 higher by 0.61% recovering earlier losses where the commodity set the low of $85.25 after opening the day at $86.01 a barrel. The downside pressure was evident in Asia with heavy losses across the board, where deepening debt woes in the euro area remained the biggest concern. In a late statement last night from Standard & Poor's, the rating agency, which cut Italy's debt rating by one notch to A from A+ on concerns that growth is weak and the fragile political framework will prevent the nation from cutting the second biggest debt load in the euro area. Asian markets took the news bearishly amid rising signs of economic softness and financial markets strain, fueling losses across the board. Japanese shares declined strongly after the long weekend where the Nikkei 225 index slumped 1.61% to close at 8721.24. Fears over the outlook are evident and the mixed trading is merely ideal after the opening gap seen this week on Monday. Crude oil was rather resilient in the past period to the market pressure partly on its own fundamentals and pressure affecting supply, yet now with the growing pressure on the demand side and deeper expectations of slowdown crude is confined below the strong $90 a barrel resistance stronghold. We still see the session to remain with high volatility with the start of the two-day FOMC meeting that investors expect might unveil new stimulus measures from the Federal Reserve to stimulate growth, which surely will reflect positively on oil in the coming days if seen to test the mentioned $90 areas again in an attempt to break higher. Slowing U.S. growth remains a big problem for crude, where slowing demand from the world's biggest consumer is strong downside pressure on black gold, especially when combined with dollar strength. Investors are focusing on the U.S. for now with as we said a pending decision from the Fed and hopes for the officials to take more measures to support growth, which already started to weigh on the dollar and supported the recovery from early intraday lows for crude. The USDIX is currently trading bearishly and down nearly 0.3% at 77.10 from the early high of 77.45. We still have confidence data from the euro area amid the focus on Greece and Italy followed by housing and inventory status data from the United States that will surely keep crude fluctuating till the end of the session attempting to sustain the upside momentum to recover some of the heavy losses recorded in the past two sessions.

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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