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Fundamental Oil Report (2011-12-21)

News EIA report
Previous -1.9 million barrel
Forecast -2.1 million barrel
Analysis Crude oil continued the upside rally that started at the beginning of the week, as it found good support from encouraging factors seen in markets, and today, hopes in Europe are carrying crude to the upside as the ECB will offer unlimited long-term loans to European banks, and fears over the Iranian oil supply is adding positive pressures as well. Crude rose significantly yesterday to close positively above $97.00 levels, as borrowing costs declined sharply in the Euro zone after Spain held an auction for short term bonds, and the Demand was strong with more than 18 billion euros offered for 5.6 billion sold which was also above the target set of 3.5 billion to 4.5 billion euros. Crude oil opened today's session at $97.56 and recorded a low of $97.41 then it rose to reach so far a high of $98.46, and it is currently trading around $98.17. The main focus will be today on the ECB as the market is eagerly awaiting the first of the three-year loans operations and is expected to see strong demand, especially after we saw the auction from Spain as banks are likely to put the bonds at the ECB as collateral for cheap liquidity at the end of the year that is usually tight on liquidity and with the ongoing strain the demand is expected as high as 400-500 billion Euros. Turning to oil supplies, the European Union along with US are considering new sanctions on Iran to ban its oil supply, which added pressures that it will affect global oil supply which may not match the global demand, as EU, U.S. and Asia-Pacific allies discussed possible measures yesterday, and vowed to increase pressure on Iran to abandon a suspected nuclear weapon program. Yesterday, many positive factors kept crude trading high amid high uncertainty, as positive signs from US are increasing at the end of the year, and it may report good growth in the fourth quarter amid all these positive signs and holding steady in the face of European pressures till now, which will increase demand on crude oil from the world's largest oil consumer. The weakening dollar is pushing crude to the upside, as the US dollar is declining since yesterday adding more positive market sentiment, as it opened today's session at 79.83 and recorded a high of 79.87, then it declined to reach so far a low of 79.45, and it is currently trading around 79.47. Today, crude market will wait the EIA report which may show US oil inventories dropped last week by 2.1 million barrels more than previous 1.9 drop in inventories, where falling oil inventories and rising demand on crude are driving crude to very high levels. Volatility and fluctuations will remain the main direction for crude today ahead of the money operations that would be held today by the ECB, and is expected as we said to have a strong demand from banks on these three years loans.

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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