Market Review (Apr 06 to Apr 20, 2012)
Oil prices remained firm in the fortnight despite a softer inventory report from the International Energy Agency (IEA). CME Crude June month contract gained by $1.16/BBL to close at $103.96/BBL.
Crude oil was well supported in the fortnight by different factors, starting with the third-largest producer in the OPEC Iraq, which stopped shipments from its northern fields due to a fault at a pipeline network in neighboring Turkey. Adding to the pessimism was the statements from Saudi Arabian Oil minister that expected further cuts in current crude prices. Saudi Oil Minister said that they were determined to see crude oil prices fall. Inventories continued to move up for the third consecutive week.
Meanwhile negotiations in the fortnight between Iran and the five permanent members in the UN plus Germany did not come with any effective solution but both parties agreed to have a second round of discussions on May 23.
So investors remained concerned over the Iranian oil supplies and a war possibility especially that Israel didn't rule out military intervention. Earlier in the fortnight oil price took a hit as oil inventories rose much more than expected and fears of a euro bond flop permeated the market place.
The Energy Information Administration set the negative tone by reporting US commercial crude oil inventories increased by 3.9 million barrels from the previous week. At 369.0 million barrels, US crude oil inventories are in the upper limit of the average range for this time of year. The EIA said that over the last four weeks, crude oil imports have averaged nearly 9.1 million barrels per day, 395 thousand barrels per day above the same four-week period last year. In its short term energy outlook, EIA expects that the West Texas Crude oil will average at $ 106 per barrel in 2012. This is $ 11 per barrel higher than average price of last year.
The IEA is now saying that after more than two years of steadily tightening oil, market conditions appear to have reversed.
Oil prices are raised later in the fortnight, yet in the big picture oil prices have risen in recent months not due to speculation but what we should call precautionary demand. US sanctions against Iran are hurting growth in that country and creating precautionary demand for oil, which is part of the reason oil prices remain at current high levels. In other words, countries have been hoarding oil in the event that oil supply might get cut. This has increased demand and prices have gone higher. It is a valid fundamental reason for oil prices to rise and has been a major factor in the pricing oil.
On the other hand crude would be vulnerable for different factors at the current time ahead of the talks between Iran and the west next month, with hopes to find a way and solve all the sticking issues between both side especially on the nuclear program. If negotiations succeeded, we will see the bear in crude trading.