Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Shamiks Crude Oil Overview 1 Summer 12


Published on

Summer trends in crude oil prices, influencing trends,impacts of crude oil movements

  • Be the first to comment

  • Be the first to like this

Shamiks Crude Oil Overview 1 Summer 12

  1. 1. Crude Oil Overview Report - summer 2012Economic over view: News that affects crude oil prices in recent times:NORTH SEA OUTPUT DROP> North Sea crude oil production will fall about 17 percent inSeptember from August, mainly due to a drop in Forties crude output with the Buzzard fieldoffline for maintenance.IRAN AND MIDDLE EAST>The North Sea output drop comes with the European Unions embargoon Iranian oil in its second month as the Wests dispute with Iran over Tehrans nuclearactivities drags on.Remarks by Prime Minister Benjamin Netanyahu on Sunday, stating that most threats to Israelssecurity were "dwarfed" by the prospect that Iran could develop nuclear weapons, kept fearsabout potential supply disruptions in focus. Beside that the oil market is concerned once againthat Iran will try to block oil shipments through the Strait of Hormuz, a narrow waterway in thePersian Gulf through, through which one-fifth of the world’s oil travels every day. Syria> Syriasongoing civil war kept intact another element of uncertainty in the region and support oilprice.Russia and US> Russia sharply criticized new U.S. sanctions against Iran on Monday, saying themeasures to punish banks, insurance companies and shippers that help Iran sell its oil wouldharm Moscows ties with Washington if Russian companies were affected.A post from Rachel Ziemba of RGE excerpted below highlights the potential premium theoil markets are attaching to the growing Iran V Israel rhetoric and.............RGE Forum Post on Israeli strike worries reach fever pitch.........Israel, where war preparations have picked up sharply, according to the local press.Worries over a unilateral Israeli strike on Irans nuclear facilities have reached a new level oflate, with some Israeli officials even suggesting a strike could come as soon as August 20, thenext full moon. A combination of warning statements from former defense officials,contingency economic planning, security dry-runs and new administrative measures that wouldhelp PM Netanyahu push through a strike, suggest that once again the risk of a strike hasincreased.While it is impossible to speculate on the timing of such an attack, a low-to-moderate
  2. 2. probability of a high risk event in the near term, the chances are rising, meaning it is worthrevisiting what an attack could imply for oil prices and the global economy (a likely spike andrisks of another recession respectively). The initial impact would likely be an overshooting ofthe oil price, even if supply chains remain open. In case of retaliation, Israeli assets wouldlikely suffer, while the straits of Hormuz could face temporary closure. We expect this wouldquickly become a regional conflict, with the U.S. drawn in. Even if supply lanes remain open,we could expect oil prices remaining elevated after any conflict as the risk of future conflictremains high.Intrade contracts (below) suggest that collective wisdom thinks the probability of an attack hasrisen, but remains well below 50%. Not only has the chance of a U.S./Israeli strike risen but thevolume of bets on the two most liquid contracts increased sharply.
  3. 3. ……….the technical difficulties of Israel going it alone, the optics of doing so during the Eid, itseems most likely that the Israelis aim to make sure that the Americans do not allow Iranians tojust play for time. We expect not only more sanctions, but also more covert activities tochallenge the nuclear program. And with Iranian oil output continuing to drop, and addingsome pressure to the oil markets.......... the moderate supply shock from Iran, theunexpected supply shock from the North Sea and worries of future supply shocks have sentoil prices up strongly, helping stabilize the macro outcomes in the GCC and other oilexporters. The return of the Iran-related fear premium means oil prices are climbing backtoward levels that could pose demand destruction. Another round from the FED ; Qe3, whichwe still see as a greater than 50% probability, in such an eventuality oil prices should stayelevated through most of the remainder of the year and much higher than warranted byunderlying global growth.Our Technical Overview:Crude oil had an interesting week ,last week and this , as in five sessions it attempted to rally,but was turned away at the $95 level. We find the fact that last week it formed a shootingstar, just after forming two hammers in a row. This suggests to us that there is a consolidationcoming, and unless the market can close above a 94-95 dollar area the WTI crude oil marketswill be stalled between a $84 - $87 and $92 levels. However; on the weekend the marketsclosed above 95 and thus signaled a strength that can take this to a 97$ to a 100$ range
  4. 4. Therefore the trade set up for a longer-term trader will be as follows. If crude breaks abovethe shooting star ($95), we go higher and longer-term traders will be long. If we break belowthe two hammers ($87), this would suggest weakness coming back into the market and supportgiving way which of course means that longer-term traders will be short of this market. In themeantime, range trading....with one eye on Israel Iran situation emerging.........Crude oil prices continued it’s upward trend during last week; the gap between Brent and WTIalso expanded during most of the week. The concerns over the rising tensions between Iran andIsrael might be contributing to the rally of oil rates.Key Technical Area: The light sweet crude markets had a positive week over the last fivesessions, and more impressive is the fact that for last 5 days of trading, we saw higher highs incrude, so it certainly looks like that the upside pressure is building.Looking at the charts,Currently we are in the middle of this consolidation zone, so choppinesscould be the norm. There are a lot of potentially bad headlines to come out of Iran over thenext couple of weeks, so a spike in prices is certainly possible. To put things in perspective, there are reports that the Obama administration is currentlylooking to release some of the strategic petroleum reserves, or SPR, in order to help combatrising gasoline prices in the United States. Upon this report, oil prices actually rose. The lasttime they attempted to release the SPR, it actually brought prices down but only for about aweek. It seems that the markets are more in tune with what difference the Obamaadministration can actually make and for how long that can really hold.....It also shows exactlyhow bullish the underlying are; as if there were any weakness we would have seen some typeof pullback from this story breaking but traders are just buying dips at this point in time andunderstand that $100 will be a hurdle but a confrontation at the Straits of Hormuz shall prompta spike well above that !!
  5. 5. Long term weekly and monthly , daily Charts of Brent Crude …….from livecharts.comBrent Weekly ContinuousBrent Monthly ContinuousBrent Daily Continuous
  6. 6. Brent Daily ContinuousRSI is in a neutral zone and there is a upside candlestick hammer in the daily brent chart,technically market is in a indecisive mood on the very short term but up-trending due to geo-political concerns. Shrugging off the demand destruction and growth concerns this is a smartbounce up during summer months, ignoring stocks and deflationary trends in the EU...We feel that $116 will be a key resistance for Brent. Currently trading within a tight rangeover the past few days between $111 to $114. a break above $116 will be decisive....Oil Price movementOil prices hit an all-time high of $145 a barrel in July 2008. Most news sources blamed this onsurging demand from China and India, combined with decreasing supply from Nigeria and Iraqoil fields. After that Crude oil prices reached a recent high of $113.93 on April 29, 2011. Priceshad been increasing steadily since February 2009, when prices dropped to $39 a barrel. Sincethen Prices is hovering at a comfortable range between $80-$100 a barrel.Oil Prices: Bleak Macro Outlook; Fundamentals and Stimulus to Provide Strength ?Upside Risks ImmediacyyImpact Downside Risks ImmediacyImpact European sovereignCentral bank and debt crisis political andgovernment policy policy uncertainty Low/ High /stimulus—QE3— NT-MT weighing on market NT-MT Medium Mediumproviding short-term sentiment. Possiblelimited boost Greek exit from the eurozone Slowing global growth hits demand and sentiment: AnemicIncreased summer demand growth in the U.S.; High/ NT-MT Low/Medium NT-MT/ tightening fundamentals recession in the Medium eurozone and slowing Chinese growth (soft or hard landing)Strait of Hormuz supplydisruption/EU-Iran oil Flight to safetyembargo NT-MT Medium NT-MT Low stregthening USDdistortions/Increased IranrhetoricInstability in MENAcountries (Iraq , Syria, QE in other DMs limit NT-MT Medium/High NT-MT LowYemen, Libya, Algeria, dollar weakeningEgypt and Bahrain) adding
  7. 7. to oil risk premiumU.S. / China Iran, Israel cooling ofmacroeconomic data rhetoric/sanctions Low/ NT-MT Medium NTsurprising on the upside, working, reducing oil Mediumimproving sentiment risk premiumChinese strategic reserve Risks of furtherstockpile building / Low/ tightening of DM credit Medium/ NT-LT NT-LTrefineries coming back Medium markets; EU banking Lowonline crisis Greater supply including : Modest Libya supply increases;Supply outages in South NT-MT Medium renewed drilling in the NT-MT MediumSudan, Yemen and Syria Gulf of Mexico; and greater Canadian and North Dakota outputOPEC GCC countriescurbing production in theface of falling demand and NT-MT Medium Increased OPEC output NT-MT Mediumrising Libyan, Angolanand Iraqi outputNigeria strikes/political Strategic petroleumunrest disrupting NT-MT Medium NT-MT Medium reserve releaseproduction Cushing pipeline capacity additionsECB’s 3y LTROs alleviate (exerting downwardcredit strain on NT-MT Medium/Low NT-MT Medium pressure on Brent pricesrefiners/support growth and upward pressure on WTI prices) EU bank creditWeak USD, sustained low tightening as capital NT-MT Low NT-MT LowDM interest rates reserve requirements riseChinese strategic reservestockpile High oil prices lead to NT-LT Low NT-MT Mediumbuilding/refineries coming demand destructionback online U.S. political gridlock threatens credit outlookOil exporter budget and recession, weighingbalancing = US-85/barrel NT-MT Low NT-MT Low on consumer oilsupport (WTI) demand and market sentiment
  8. 8. Asia, the Middle East andLatAm are constructingrefineries that may NT-MT Lowdecrease excess crudesupply in developedmarkets/blend distortionsEnvironmental concerns MT-LT Lowincrease production costsSlowing OPEC net export LT Medium/LowgrowthTable from RGE NT=Near Term, MT=Medium Term, LT=Long Term RiskDemand (Global Economic Activity)........ Weak Demand, but Optimism GrowsOne of the key drivers of oil is the global economic growth, particularly in emerging marketeconomies. As shown in Figure 1, world gross domestic product (GDP) growth (with countriesweighted by oil consumption shares) has averaged close to 5 percent per year since 2004,marking the strongest performance in two decades.
  9. 9. Supply (Stagnant Production)While global demand has remained strong, overall non-OPEC production growth has slowed. Inthe past three years, non-OPEC production growth has been well below rates seen earlier thisdecade. World oil consumption growth has simply outpaced non-OPEC production growth everyyear since 2003. This imbalance increases reliance upon OPEC production and/or inventoriesto fill the gap. However, since 2003, OPEC oil production has grown by only 2.4 million barrelsper day while the “call on OPEC” (defined as the difference between world consumption andnon-OPEC production) increased by 4.4 million barrels per day. As a result, the world oilmarket balance has tightened significantly.Figure RGE : OPEC Output (1000 bpd)
  10. 10. Increasing ConsumptionThe rise in global economic activity has been accompanied by corresponding growth in world oilconsumption. Since 2003, world oil consumption growth has averaged 1.8 percent per year.Non-member countries of the OECD, especially China, India, and the Middle East, represent thelargest part of this growth. Despite higher prices, growth in world oil consumption remainsstrong.Data from EIAHigh correlation between S&P 500 and WTI crude oil price:Recently oil prices reached above $107 and $90 for Brent and WTI references, respectively, dueto increasing tensions in the Middle East. According to Department of Energy’s EnergyInformation Administration, it is interesting to note that since 2009, up ticks in the U.S.economy have usually coincided with rises in oil prices but from Jan 2009 onward, the twomeasures have followed each other in near lockstep, breaking only in the months surroundingthe Arab Spring uprisings after another price spike. The two explanations have been linked to the recently strengthened positive relationshipbetween the price of oil and the S&P 500. First, expectations of economic growth have animpact on oil prices as increased economic activity generates increased demand forcommodities. Second, the development and expansion of commodities indices has allowed oiland other commodities to become a new investment asset whose level of risk/return is similarto that of stocks. This causes investors to trade oil in a fashion more similar to that of stocks,increasing the likelihood that the prices of both would move in tandem.
  11. 11. Data Source RGE + Thomson Reuters
  12. 12. U.S. Oil Inventories at 22-Year Highs; Gasoline Inventories Draw Source: EIA via RGE
  13. 13. asingha@microsec.inShamik Bhose Archan SinghaCommodity & Currency & Interest rate futures Markets ; Microsec Commerze Limited To see our various commodity and related world financial market articles visit And and type Shamik Bhose in the search column to access our latest review and outlook articles alongwith most recent reading interest ;DISCLAIMER AND PRIVILEGE NOTICE : This e-mail and any files transmitted with itcontain confidential, copyright, proprietary and legally privileged information. Itshould not be used by anyone who is not the original intended recipient. Any use,distribution, copying or disclosure by any other person is strictly prohibited. If youreceive this transmission in error, please notify the sender by reply email and thendestroy the message. Opinions, conclusions and other information in this messagethat do not relate to official business of the writer or associates / group shall beunderstood to be neither given nor endorsed by us.. Internet communications cannotbe guaranteed to be timely, Secure, error or virus-free. The sender does not acceptliability for any errors or omissions