Global Growth Depresses Crude Oil

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Crude oil futures were trading up more than 3% in benchmark contracts, Tuesday, on the New York Mercantile Exchange. Crude oil futures prices added to gains at midday on concerns over the border dispute between Syria and Turkey, worries surround whether 400,000 b/d of oil shipped to Turkey from Iraq’s northern Kurdistan region could be at risk in the border skirmish.

During early Asian session, oil futures prices are trading below $92/bbl with loss of more than 0.50 percent in international market. This might be a little correction on yesterday’s gain of more than 3 percent. Most of the Asian equities are trading in a negative bias on concern of slowdown in world economy after IMF downgraded the outlook.

Lower corporate earnings are also supporting the downtrend. Other than this, Greece –German meet on yesterday could not arrive to a fruitful decision which is also creating concern of spreading Euro-zone debt issue. So, the above factors might be weighing on oil futures prices currently. However, as oil prices are more sensitive to the Geopolitical concern basically from Middle East or OPEC countries, we may expect the persisting dispute between Syria and Turkey might lead oil prices on higher side. NATO has said to defend Turkey against Syria and probability of more war may create further oil supply disturbances. As per US Energy Department, due to rise in domestic production and lower pace of consumption crude oil stocks are likely to increase which may limit gains in oil futures. Actual inventory data is due on tomorrow as delayed by one day due to Columbus Day holiday on last Monday. From economic data front, US mortgage application numbers are likely to increase along with lower wholesale stocks.

As per the US Energy Information Administration (EIA), crude oil inventories increased around 2.1 percent for the month of September.  The rise in the inventories is the indicator of the slow economic growth. Crude Oil Inventories gained mainly because of increase in the production and decline in consumption of gasoline. While on a year to date basis, US crude oil inventories increased by 10.6 percent for the current year. So any small supply disruption in the Middle East should not have much of an effect on prices.

Saudi Arabia is satisfied that oil prices have fallen to a level that does not hamper global growth, Saudi Oil Minister Ali al-Naimi said on Wednesday, signaling success in a Gulf Arab effort to keep oil prices under control despite a halving of Iranian exports because of Western sanctions.

At present global growth weighs on the price of crude with shrinking growth will come lower demand. The World Bank last week revised their estimates for the Asian region and this week the IMF reduced their forecasts.

The IMF said the global economic slowdown is worsening as it cuts the growth forecasts for the second time since April and warned US and European policymakers that failure to fix their economic ills would prolong the slump.

France, Spain and several other euro-zone governments won’t hit budget deficit targets agreed with European authorities, the International Monetary Fund said, setting the stage for a contentious debate over whether the governments should pursue more cuts or allow the targets to slip.

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About:FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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