Market Review (July 06th to July 20th, 2012)
Crude oil prices jumped to a 2-month high amid concerns over the situation in the Middle East is threatening crude oil and it revived oil disruption fears.CME Crude Aug month contract gained by $4.55/BBL to close at $91.56/BBL.
After a series of consecutive upward sessions, crude oil prices managed to close above the psychological level of $90 per barrel in the fortnight. The commodity maintained this strong upside throughout eight sessions achieving huge gains despite the market’s uncertainty and the gloomy outlook for the global economy. The surge seen in the crude was provided after tensions between Iran and Israel erupted as the later blamed them for attack on its tourists in Bulgaria. Israeli Prime Minister termed it as a part of global campaign of terror carried out by Iran and Hezbollah. The threat of disruption in crude oil by Iran was once again a matter of concern.
Middle East tensions fueled crude oil to test a eight weeks high. Supplies of oil remained lower and supported the bullish sentiments in crude oil. Meanwhile, Russia and China, two of the five permanent members of the UN Security Council, vetoed resolution to sanction against Syria for the third time in nine months.
The other main factor that helped crude to achieve the gains was the decline in U.S. oil inventories that signaled for a recovering demand on crude in the world's largest oil consumer after previous negative signs that were pointing to a weak demand. The EIA reported that the U.S. commercial crude oil inventories decreased by 0.8 million barrels from the previous week. At 377.4 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Energy Information Administration (EIA) said that supplies of Crude declined for the third straight week, an indicator of renewed demand. On the other hand the Organization of the Petroleum Exporting Countries (OPEC) has left its forecast for 2012 global oil demand unchanged at 0.9mn barrels per day (bpd) but expected that the growth will slow to 0.82 million barrels per day in 2013 due to euro zone economic crisis.
Crude oil will remain well supported by the rising tension between Iran and the west which was behind pushing crude from recent lows around $78 to the current high levels. However, the upside momentum will continue to help crude oil facing any downside pressure whether from Europe or not until clearer signs appear on the Iran-West relationship. The question now is — would the Middle East return to push crude oil up to high levels as we saw before? Actually it is a high possibility despite the current economic slowdown. In general, crude oil will remain well supported mainly by these tensions between Iran and the west and how things going to be between them. Also, the commodity will be affected by the US dollar which played an important role in pushing crude upwards.