Friday, July 12, 2013

Crude Oil Fundamentals Should Push Prices Down...

Crude oil prices hit a 15-month high point yesterday, boosted by signs of strengthening demand in top consumer the United States and ongoing supply fears linked to violence in Egypt. The New York’s main contract, WTI for delivery in August, spiked to $107.45 a barrel a level last seen in late March 2012. It later stood at $106.02, down 50 cents from Wednesday’s closing level. Crude futures had already scored multi-month highs on Wednesday after the US Energy Information Administration’s weekly crude stockpiles data indicated a major pickup in energy demand.

The EIA said crude oil stockpiles tumbled by 9.9 million barrels in the week ended July 5. That was more than triple the 2.9-million-barrel drop expected by analysts polled by Dow Jones Newswires, and followed the prior week’s drop of nearly 10 million barrels. Traders remain deeply concerned over potential disruption in Middle East supply following the overthrow last week of Egypt’s Islamist president Mohamed Morsi by the military. Egypt is not a major crude oil exporter but is home to key oil transit points of the Suez Canal and the Sumed Pipeline.

It was inevitable that WTI prices would climb just as operators increased pipeline capacity, easing the supply glut in Cushing, Oklahoma, where physical oil demanded from NYMEX WTI futures contracts gets delivered and sent on to refineries. BP also recently restarted full operations at its refinery in Whiting, Indiana, which boosted demand, and imports have been constrained after flooding in Canada. But the latest spike is already proving short lived, because the U.S. continues to pump out shale oil like never before. Production is now 16% higher than where it was a year ago. Traders should expect to see prices decline as production and inventory climbs.

Crude oil prices fell sharply, after International Energy Agency projected increased supply from sources outside the Organization of Petroleum Exporting Countries, which could outstrip demand. The IEA forecast showed, supply from non-OPEC countries to grow 1.3mn barrels per day next year, with supplies to rise 1.2mn barrels per day this year. The agency also lifted its global oil demand forecast for 2013 and the same is expected to grow by 1.2mn barrels per day in 2014.

Natural gas futures fell from its day’s high, after a weekly government report showed that US gas supplies are rising faster than normal for this time of year. Natural gas is trading at 3.608 easing 4 points this morning and continuing with a negative bias. The US Energy Information Administration said 82bn cubic feet of gas were injected into storage last week, much higher than last year’s 34bcf build for the same week and above the 5-year average injection of 74bcf for the week.

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