Archive for the ‘OPEC’ Category

CRUDE OIL …. “Can It Continue The Recovery With Same Pace In 2010”

Crude oil, which is the  lifeblood of the economy, has shown stunning recovery in this year as prices have merely doubled from low of $35 to nearly $80. Thanks to the dose of economic stimulus packages which revived the global economy to come out of recession and hence the traders sentiments in crude oil turned in favour of bulls. But the million dollar question is that can crude continue this recovery in medium term. But as of now it seems that the speculative upside and downside rally is over which was seen when it rocked higher toward $147 and then plunged to $35. From here on, the key fundamentals of supply and demand will be the driver of crude prices.

In the year 2009 dollar weakness was the prime reason for the swift rally in crude oil prices. As crude oil is considered as other asset class and massive flow of hedge funds supported the crude oil prices.

Stunning recovery worldwide after a severe recession and the improvement in expected GDP figures by IMF also kept bulls interested.

Now as the global economy is slowing limping back to normal which is suggested by various economic indicators but still the skepticism of pace of recovery is questionable which will further guide the crude movements.

It is important to remember that current pricing on crude oil is influenced by world demand, not just U.S. demand. The Asian economies are improving; China’s economy expanded by 8.9% in the third quarter. Global macro economy will be the key driver of the crude oil prices in times to come.

Crude oil is primarily a transportation fuel. So increase in crude oil usage in transportation will get boost as the global economy continue to recover.

Oil has risen by 79 percent this year on signs that global economy is recovering from its worst recession since World War II, stoking fuel demand amid output cuts by the Organization of Petroleum Exporting Countries.

OPEC countries kingpin Saudi Arabia, also believes that $75 per barrel is a fair price for both consumers and producers. In September meeting, OPEC members said they were content with the direction in which prices were heading. While voicing worries about high oil stock levels globally, they decided to hold production steady and focus on compliance factor with existing production quotas. The lack of production discipline, however, appears to continue. According to latest OPEC report group’s production averaged 26.52 million barrels per day in October, a 50,000 barrel per day increase from September.

Recently OPEC, supplier of about 35 percent of the world’s crude oil, revised its estimate for 2010 global demand growth by 750,000 barrels or 0.9% to 85.07 million barrels a day. OPEC in September agreed to maintain output quotas at 24.845 million barrels per day, will hold its next meeting in Luanda, Angola, on December 22.

The hurricane season in the US has also remained quite in this year as no major hurricane hit the US refineries. Hurricane season generally starts from June 1 and lasts through November.

In a nutshell crude oil will not see one sided movement and will remain volatile in the year 2010. Dollar index has been under lot of pressure in the year 2009, which has given support to the crude oil prices but as the dollar index is expected to show some recovery in first quarter of 2010 that can exert pressure on crude oil prices.

OECD demand of energy is slated to increase in the year 2010 and will give support to the crude prices. China energy demand is also expected to rise in the year 2010 and that will keep the prices supported.

So overall the prices in the next year can remain in the range of $55-85.