Surfing Fundamental Waves in Oil Market

Surfing Fundamental Waves in Oil Market

Submitted by adil on Wed, 11/13/2013 - 14:37

Events in the crude oil market have fueled the recent easing and rallying of its price. Investors and traders have been watching the market more closely to be able to act astutely in case another economic calamity shows its signs. Therefore, they have become more responsive and attentive to all the details these events paint to them.

Trading had been choppy; the US crude for December delivery fell by 2.2%, shedding $ 2.10 to settle at $93.03. It is the steepest percentage-wise fall since June 20 of this year. Brent crude on the other hand crossed $106 mark.

A combination of anticipations is playing their toll on the crude oil market. The rise in Brent crude is owed to supply concerns emerging from the accelerating turmoil in Libya. Unrest in the country is likely to cause disruptions in its oil exports, which form a major part of the global oil production. Protestors blocked a refinery's front gate and strikes have already slashed the country's exports by more than 10%.

The optimism on talks between Iran and western powers also ended sourly. It was thought that a deal between these countries would open up oil supplies that will push prices downwards. Sanctions on Iran have forcefully removed 1 million bpd output from reaching global markets. The failure to reach a deal played its role in pushing Brent crude above $106.

On the other hand, the US crude futures are facing easing pressures due to demand expectations. Surveys from Reuters ahead on weekly inventory reports released by American Petroleum Institute (API) and US Energy Information Administration (EIA), suggested that total US crude oil inventories increased by 1 million barrels. Falling trade benchmarks across the US crude futures in LLS and WTI corroborate with supply gains over last week. EIA data showed that total crude inventories in the week to November 1 rose by 1.6 million barrels.

The rise in US crude oil inventories will come the eight consecutive times, which is a 24-year high record. The WTI-Brent spread has grown by $3.51 in three days; WTI's discount to Brent rose to $12.77 from $11.26. Powered by pipeline projects at Cushing and tapping of shale deposits, USA seems set to become the world's largest crude oil producer by 2014 or 2015, surpassing Russia and Saudi Arabia.

Meanwhile, the investors and traders have fixed their eyes and ears on FED's take on stimulus plans. With the US economy showing signs of improvement, the speculation is rife that FED will taper the stimulus program that has so far supported commodity prices by improving investors' risk appetites through increased supply of easy money. The nervous attitude of investors was evident by a dip equity markets and government debt.