Oil: up or down?


FuelOil market became a fight arena of two opposite tendencies. On the one hand investors worry aabout tempo of world economic growth: Europe fights against recession, debt market of euro zone might become aggravated, and China also slowed down. On the other hand in the main worlds consumer of oil – the United States of America – there are good news one by one.

Such situation caused increased volatility in the market, which perfectly  had an effect on Brent price. In the first part of January Brent stock prices consolidated around $110 per barrel. Then there was developed during the month rally, which lead to exceeding the level of $118 in the middle of February. In the second part of the month fast rise changed into even faster decrease. So in the beginning of March Brent price was close to the level of $110 per barrel and kept decreasing.

The main intrigue, which might have effect on the further tendency of oil price, is issue about demand in “black gold” in the USA.

On the one hand, statistics testifies to positive tendencies in the US labor market. In February world’s largest economy created 236 thousands of places of work (not taking into account farm sector), it has even surpassed experts’ consensus-forecast (160 thousands), and unemployment rate in the USA fell to 7.7% (four years low). Labor market recovery is evident sign of increased economic activity, which always followed by rise in energy consumption, and so, oil demand. For oil such news is evident stimulus for rise: not for nothing on Friday, on the 8th of March, when this report was released, “black gold”quotation   run up, and Light oil, which is the standard for the USA, even started to form bullish trend.

But, on the other hand, there is another tendency. Look at the chart of the US crude oil reserve, which is based on weekly report of the Ministry of Engineering. In September 2004 there was great change: from that times the chart is directly rising. During the week, from the 23th of February till the 1st of March the US oil reserve reached 381.4 million barrels – July 2012 record high and eighty two years (!) record for this season. And the report, released yesterday, (during the week, which ended on the 8th of March), told about new record  – 384.0 million barrels. Increase in reserve of hydrocarbon raw material, which is supported by increase in inner extraction, decrease necessity of the USA for import, and it is bad for oil price. .

Having weighted all factors, I come to a conclusion that rise in oil price according to positive news from the USA is not reliable. If in January and February “black gold” rose because of expectations of accelerated tempo of the world’s economic growth in total, and now when all news told that «everywhere it is bad, and in the USA it is good», it contributes to strengthening of the US dollar against other currencies. And dollar’s rise is traditionally negative factor for oil…

image source:universalfuels.co.uk


About Author

I have been friend with currency market since 2006. I hope that this friendship is not only useful to me, because over the years I have repeatedly provided analytical services to various companies and media outlets. I love fundamental analysis. Every day, I am convinced that the statistics is not boring numbers but fascinating reading, which, moreover, can predict the future. Technical analysis is also not neglected, especially as my hobby - finding effective algorithms for automated trading systems.