FX:Crude Pressured By The Weakening Demand Outlook
Oil prices are facing downside pressures after the International Energy Agency (IEA) cut its demand outlook for this year’s fourth quarter and 2013, citing weakness in Europe’s economy, at a time when markets are well supplied.
Amid a weaker demand outlook and increased non-OPEC supplies, the IEA cut estimates for global oil demand for Q4 by 300,000 barrel per day. In 2013 demand is forecasted to grow by 830,000 to 90.4 million bpd, 100,000 bpd less than last month.
Since Europe’s fiscal policies failed to improve the region’s economic conditions, while the U.S. is facing the looming “fiscal cliff” which might push it into recession, the outlook for global recovery is uncertain and the outlook for demand on oil is darkening.
While uncertainties over the eurozone's debt problems persist, the U.S. lawmakers started a meeting in Washington on Tuesday to talk about the $600 billion of budget cuts and tax increases scheduled to take effect in January.
“The United States cannot afford not to resolve it, so there might an 11 th hour agreement. Till then, there will be a lot of uncertainty and that will weigh on markets,” said analyst Ben Le Brun.
Adding to the downside pressures on oil prices was the jump seen in Iranian oil exports, which rose by a third to 1.3 million barrels per day in October from the previous two months, as China and South Korea bought more oil.
OPEC, which provides about 40% of the world’s oil supplies, is unlikely to cut production when the 12-member group gathers in Vienna on December 12, which will keep prices under pressures, yet the losses are capped by the tensions in the Middle East.
Oil prices also fell as U.S. crude oil inventories are seen rising 2.5 million barrels last week, the highest level since July 20. The report however will be released a day late because of the Veterans Day holiday on Monday on Nov. 12.
Crude is trading as of this writing around the $85.50 a barrel, from the highest of $85.55 to the lowest of $85.13. The resistance around $85.60 continues to hold, keeping crude under pressures. Brent is trading at $108.25 being almost unchanged from today’s opening.
