Fundamental Oil Report (2011-11-25)

News Crude Oil surrenders Thursday's gains amid choppy and volatile trades
Analysis Crude oil surrendered the gains recorded on Thursday and returned to the downside choppy trading on Friday amid lingering debt woes and fears over the outlook for the global economy which countered fears of supply disruption from the oil rich Middle East. Crude oil futures for January settlement are currently trading around $96.27 down from the opening of $97.01 where it recorded the high so far and slumped to the low of $96.04 per barrel. Oil is heading for its second consecutive week of losses on worsening state of the economy and rising fears over the fragile status in Europe and the deepening debt crisis. Conditions in debt-laden euro nations only took a beating to the worse this week with the contagion pressures starting to appear on France with rising borrowing costs and risks of losing its top credit rating, inability of Germany to lure investors in its bond auction, record yields on Italian and Spanish debt, and last but not least a new wave of downgrades for Portugal and Hungary to junk status! It was indeed another chapter of downbeat news for the global economy this week and that all took its toll on the growth sensitive crude. With eyes locked on the developments in the euro area and the lack of action from policy makers investors continue to discount the worst and the flow of weak macroeconomic data this week from China all the way across to the United States added to the worries. Crude oil rose yesterday in a slight relief gain with the absence of floor trading in the U.S. for Thanksgiving as reports of clashes in the biggest oil supplier Saudi Arabia renewed fears of oil disruptions amid ongoing unrest across the region with Syria and Egypt still a matter of concern. This also coupled with the new sanctions imposed on Iran's oil industry by the United States which might offer interim pressure on crude markets. Broad downside pressures on crude oil are evident and all on the demand side, printing a weaker outlook for the commodity which outweighs the upside pressures on the supply side! Growth is weakening with Chinese manufacturing contracting unexpectedly this week and US growth revised lower in the third quarter alongside abysmal European data that shows the euro area might be already in recession. High volatility is evident and likely to continue over the coming period with the dollar still enjoying the upper hand. The dollar is heading to its fourth consecutive weekly gain and extended the rally strongly this week to the highest in almost seven weeks to trade now around 79.27 from the weekly opening at 78.04. Today we still see the mixed trading and the fears to extend with the U.S. market back but on minimum capacity after yesterday's holiday, where floor trading will return to settle electronic trading that was seen yesterday that might affect trading ahead of the weekend. The lack of data from major economies today will be more reason for volatility as the focus remains on Europe and investors are again pessimistic after the meeting looked at for hope between Merkel, Sarkozy and Monti failed to produce anything new to the market.

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.

Other Topics