Fundamental Oil Report (2011-12-14)

News Oil fluctuates in a tight range ahead of OPEC meeting
Analysis Oil is fluctuating this morning around $100 a barrel ahead of OPEC's meeting and final decision on the quota after yesterday oil surged on the rising tension between the West and Iran. Some profit taking is seen on crude oil after yesterday on Tuesday the contract jumped around $4 after reports said Iran is proceeding with the military drills and shut the Strait of Hormuz. The contract still ended with strong gains by 2.4% the biggest since November 16. This morning the market remains edgy and as we said before the critical geopolitical strain is keeping the upside bias, yet the deepening crisis in Europe and rising growth woes are strong downside pressure on oil and especially with weaker demand prospects eyed with the global growth slowdown. The European crisis and slowing growth remain evident on the sentiment and on crude and that is preventing the tension with Iran from withholding the constant upper hand yet still offers upside support. The futures for January settlement are currently hovering around $99.95 down nearly 0.2% after opening at $100.33 and slid to the low of $99.63 so far. Investors are worried still ahead of OPEC's meeting where the cartel is expected to announce its decision to set the quota at 30 million barrels a day according to news reports. Nevertheless, even as OPEC is expected to keep its production near its highest in three years the market is still skeptic over the outcome after their last disagreement and especially as producing nations are in disarray over the fair price for them and the production quotas for each nations, especially that Saudi Arabia continued to flood the market with oil to ease the price strain to sustain global economic growth, where to Saudi faltering global growth at this time of crisis will surely be strongly far more bearish on crude. Volatility is evident with a lot on one plate with Europe still in focus and jitters evident in the market over the outlook for the nation. The Feds also yesterday warned of the downside pressure from the worsening outlook and that was no surprise to oil markets after the IEA lowered its demand forecast for this year and next citing the slowing global growth which is all related to the problems in the euro area in particular and the deepening debt crisis. We still expect high volatility for crude oil today until the OPEC meeting is final and with the EIA report that is also offering upside support where it is expected to report 2.5 MB drop in commercial crude inventories last week opposed to the reported buildup of 462,000 from API late Tuesday. Crude rallied strongly and with the slimming impact of the Iran news on oil and the clear downside pressure on oil from the weak global outlook and jitters over Europe the profit taking might continue unless OPEC and the EIA prove to be somewhat of a surprise. The market sentiment plays a major role and especially with new Italian and German debt sales from Europe today and any improvement in the sentiment will help oil retain its gains, yet overall heavy volatility is expected today.

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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