Crude Oil & Brent Oil Heading Towards Price Slump

This week it looks like traders will take a breather from equities and currencies as the commodity market, in particular the energy sector.  With the US dollar and forex traders waiting for the FOMC meeting on January 29^th and Chinese and Japanese data behind the markets traders will pay close attention to the minimal amount of US data due this week but the focus seems to be on crude oil, Brent oil, gasoline and natural gas. While progress to date is tentative at best, a simultaneous normalization in both Iranian and Libyan oil exports is a real risk for the global oil balance in 2014, said a report by Bank of America Merrill Lynch this weekend.  With the Wests deal with Iran moving forward with no major hitches and the new Egyptian constitution approval the Middle East is beginning to turn down the temperature the geopolitical stress. Libya is reaching accord with protesters as production returns to normal; Syria remains a powder keg but has little effect on the energy markets. If some or all of their production was to return, this could create meaningful downside pressure on prices. In an extreme case, where non-OPEC production strengthens and Libya and Iran partially or completely recover, the global oil supply-demand balance could see a swing of 1.5-3 million b/d, on our estimates, stated BofA Merrill Lynch in its global research, titled, “BofA Global Energy Weekly – All Eyes on Saudi.”

Crude oil is trading at 93.93 down 67 cents to start off the week after the weekend report weighed heavily on prices. Brent oil is slightly in the green at 106.35. Better than expected Chinese GDP numbers this morning is helping to support Brent oil prices.  Chinese GDP printed at 7.7% well above the forecast of 7.5% by the government. China’s oil consumption in 2013 experienced the slowest rise in five years, data showed on Monday, because of easing economic growth but the pace is expected to accelerate this year as new refineries start up. Implied oil demand in the world’s second-largest user rose 1.6% last year, or 150,000 bpd on the year, according to Reuter’s calculations based on preliminary government data. The 1.6% growth lagged an IEA forecast for 2013 oil demand growth at 3.8%, but was in line with a forecast by the country’s top oil firm China National Petroleum Corporation (CNPC) which last week pegged 2013 oil demand at 1.7%.

Oil prices will take a downward trend in 2014 driven by a remarkable increase in supplies not matched with the demand surge, a Kuwaiti oil expert projected. In an interview with Kuna, Mohammad Al Shatti even expected that the prices could go down to $90 and $80 per barrel in 2014, if Iraq, Iran and Libya’s oil production swelled.

Heating oil is down this morning giving up 15 points after climbing to a monthly high at the end of last week. The commodity is trading at 3.0271 as the cold spell across the US eases. Natural gas also tumbled by 25 point to trade at 4.272 as residential heating demands decrease. The weather forecast calls for continued cold through the balance of January just not at the extremes of the last few weeks.

Gasoline eased after inventories climbed to an 11 month high and the cold storm across the US will reduce demand as drives stay put during heavy storms. Gasoline tumbled to a two-month low last week after a government report showed supplies climbed to 233.1 million barrels, the highest since Feb. 8. Demand fell to the least in a year, pushing pump prices to a three-week low. Gasoline prices slipped 5.62 cents, or 2.1 percent, to $2.6224 a gallon last week.