Fundamental Oil Report (2012-01-11)

News EIA report
Previous 2.2 million barrels
Forecast 1.0 million barrels
Analysis Crude oil is volatile today ahead of major meetings that would take place in Europe to discuss the current market situation and the debt crisis which is weighing down on growth, where Iran remains the factor behind higher oil prices. Crude oil opened today's session at $102.16 and recorded a high of $102.44 and a low of $101.59, where it is currently trading around $102.14. Fears over the Iranian oil production are increasing as the US and their allies insisted on their stance to put new sanctions on Iran oil exports despite Iran's threat to stop the oil flow from the Strait of Hormuz, where around 15.5 million barrels of crude oil pass through the strait a day, making it one of the world's most strategically important points. Which represents 35% of the world's seaborne oil shipments, and 20% of oil traded worldwide in 2011. As a result, Japan has asked many Gulf countries including Saudi Arabia and the UAE to supply it with more oil, according to the Japanese Foreign Minister, which signaled that tighter sanctions on Iran would affect the Iranian oil exports, and will reduce its oil imports from Iran. On the other hand, China's Petroleum and Chemical Industry Federation estimated that apparent crude consumption will increase 5.3% (YOY) to 9.6 million barrels per day, compared with its forecast of a rise of around 3.5% in 2011, which is considered a huge amount from the world's second largest oil consumer. The US Energy Information Administration ( EIA ) expects that global oil consumption will increase by 1.3 million barrels a day this year and by 1.5 million barrels a day in 2013, with higher demand met by increased production from OPEC and from non-OPEC producers. Also, the EIA expects that the market will rely on both inventories and increases in production of crude oil in OPEC member's countries to meet global demand growth. OPEC crude oil production will increase by about 90,000 barrels a day in 2012 to average 29.96 million barrels a day and by 590,000 barrels a day in 2013, where US crude oil production will average 5.74 million barrels a day this year, increasing by 170,000 barrels a day from 2011. Shifting to Europe and its latest developments, the rating agency, Fitch, said yesterday that Italy is in the brink of having its credit rating cut, it also putting a number of euro area economies, including Spain, Belgium Slovenia and others, but the agency is seeing that is unlikely to downgrade France's top rating this year unless there is a serious intensification of the euro zone crisis. Today, many major meetings will take place to discuss the debt crises and the current market conditions, as the IMF chief Christine Lagarde will meet the French President Nicolas Sarkozy with discussions expected to focus on the sovereign debt crisis and its effects to the global economy. Also, the Italian Prime Minister Mario Monti will meet the German Chancellor today, where yesterday as we said the rating agency Fitch has warned Italy for a possible downgrade amid current market conditions and high national debt for the country. Germany is due to hold a bond auction today of 5 year maturities at 10:30 GMT, which will raise the volatility in markets ahead of all these meetings and ahead of the auction, where hopes not to see low demand on these bonds. Also, the EIA is due today and expected to show a rise in US inventories last week by 1.0 million barrels compared to the previous buildup of 2.2 million barrels, where volatility will be high today ahead of this report which is closely monitored by investors.

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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