Market Review (Mar 21 to Apr 5, 2012)
Crude oil prices extended its fall in the fortnight as the US dollar continued to appreciate post the latest FOMC minutes released hinted further that any additional quantitative easing from the U.S. central bank is not likely.CME Crude May month contract lost by $3.29/BBL to close at $103.14/BBL. Crude oil markets remained buoyant through the first half of the fortnight, supported by constructive fundamentals and the continued presence of geopolitical risks in the supply system. However, the second half of the fortnight saw prices ease as talks of a potential strategic release gained momentum. The mixed economic data and record supplies kept oil prices under pressured with the news of oil release from Strategic petroleum reserves from EU and US which dragged oil prices nearly $101 in the end of the fortnight.
According to the EIA weekly report, total crude oil and petroleum products stocks jumped + 12.37 mmb to 1073.83 mmb in the week ended March 30 resulting Crude oil prices to slid their lowest level in six weeks and end-of-quarter profit booking. Crude oil prices have been on a seemingly unstoppable surge since early October, rising nearly 50% as fears were inflamed that a conflict between Iran and the West would lead to global supply disruptions. However, prices dropped as the US, the UK and France begun discussing the possibility of a release from strategic petroleum reserves to cool the over-heated market.
Moreover, news that Saudi Arabia would not cut oil supply despite SPR release also pressured prices. OPEC has increased oil production and Saudi sources say that there is no problem with supply, as it can be increased significantly from current levels. As per the API US crude oil inventories increased more than expected by 7.8 million barrels for the week ending on 30th March 2012. Crude oil prices declined on the back of more than expected rise in US crude oil inventories as per the American Petroleum Institute data. Additionally, a stronger dollar index and Fed's decision for not going for monetary easing exerted downside pressure on the prices of the commodity.
Crude oil prices are expected to trade down witnessing correction on high inventory levels with the end of winter season in US as refiners will go for maintenance shut before the summer season accelerates. US commercial crude oil inventories rose to 20 months high to 353.4 mb in the week ended March 23 creating huge pressure on prices. Finally, there is increased speculation that the US and Europe will release some of their strategic reserves which would be a further negative for oil prices. In our opinion it is fair to say that a strategic stock release of some sort seem highly likely over the next few months. In our view, a large part of a potential stock release is already being priced in and has been key to deterring prices from moving higher. On the other hand the ongoing geopolitical concerns on Iran and Westerns countries will keep the risk premium in oil prices limiting the downside.