Oil bulls in a sticky patch
Leon Watson, January 31st, 2010
SLUGGISH demand for oil has led to warnings that the cost of a barrel will stay low for months.
Wary analysts have told 247Bull.com that recent price drops after steady rises in 2009 reflect continued uncertainty about the world’s economic outlook.
Black gold hit a 15-month high of $84 a barrel this month but has suffered an almost continuous slide for three weeks.
Despite a small surge on Thursday, oil was trading below $75 this week – even though there was news of a drop in crude supplies.
Government figures revealed that stocks in the US have fallen by 3.9 million barrels which was far more than expected.
Qatar’s oil minister also revealed this week that OPEC – the organisation that controls production in 12 oil-rich countries – is unlikely to decide to change its output when delegates meet on March 17 in Vienna.
Analysts would normally expect these factors to push the price up but the market has been pegged back by concerns over China’s moves to tighten lending conditions.
This was despite the Federal Reserve keeping interest rates unchanged and giving an upbeat assessment of the US economy, which strengthened the US dollar against its major rivals.
Barack Obama’s optimistic pledge in his State of the Union address to double exports in the next five years to stimulate job creation also failed to have a lasting effect.
The US president promised that jobs would be his “number one focus in 2010” and that statement briefly halted oil’s slide.
But it was not enough. The markets remain unconvinced that America is out of the downturn and that the country will soon start burning more fuel as its economy recovers.
As a result, oil dipped again on Thursday.
ODL Securities analyst Chris Hossain said: “While oil bulls have enjoyed a stellar run since early 2009, the price has pulled back over the past couple of weeks.
“There is a real two-way battle on. The arguments for a rise in price over the following year rest on an improving global economy pushing up demand.
“But this has been dampened recently by concerns of over-heating in the Chinese economy, which has led to lending rules being tightened.
“The general view is that the price of oil will be intrinsically linked to the overall state of the global economy – if recent history is anything to go by.”
Simon Denham, managing director of spread betting firm Capital Spreads, had a slightly more optimistic outlook.
He said: “Oil managed to claw its way back a bit and it was above 74 bucks on Thursday morning.
“Dealers will not be unhappy with that as the bulls were looking a tad green around the gills when we spiked down to the mid-72s on Wednesday evening.
“The problem is volume resistance in the high $74 area up to $75 which may prove difficult to overcome in the short term. But if the asset markets continue to hold firm there is every chance that efforts will be made to push prices higher.
“Unfortunately we come against the fact that inventories are still strong and with growth in the West still on the anaemic side, pressure on supply seems very far away just now.”
Tags: bulls, Capital Spreads, Chris Hossain, ODL Securities, oil, OPEC, Simon Denham, US employment, US President
This entry was posted on Sunday, January 31st, 2010 at 8:58 am and is filed under Blog, Featured.