Short Term Crude Rally Halted by Global Growth Concerns

A short term oil rally failed to hold yesterday under the weight of global economic worries, with U.S. benchmark crude-oil prices falling for a 5th straight day to end at a one-month low. Ahead of this week’s FOMC meeting markets are mixed with the US dollar weakening and gold climbing. The OPEC oil output policy talks are for tomorrow. The Organization of the Petroleum Exporting Countries is widely expected to keep its oil output unchanged, even as output is running 1 million barrels a day above agreed levels and estimates of demand for its oil.

The price drop comes amid sliding demand and growing inventories in the U.S., the world’s biggest oil consumer. Surging output from U.S. shale-oil fields is cutting U.S. reliance on oil imports and complicates OPEC talks. U.S. output is the highest in decades, and currently averaging about 950,000 barrels a day above a year earlier. Year-to-date output through November was up nearly 10%, or 550,000 barrels a day.

Last week’s growth revisions by the ECB, downgrading growth in the EU through early 2014 is weighing heavily on crude oil, this was compounded by a downward revision in the UK the day prior and followed the next day by German revisions. Although positive Chinese data over the weekend helped support industrial production in the country the increased demand projections are not enough to offset the global growth slowdown.

Crude ended Monday at $85.55 but bounced back a bit in the early Asian session, on a weaker US dollar and low prices, the commodity is a good buy at this time. The US dollar is trading at 80.27 off its recent highs.

Chinese data showed oil imports increased last month, a sign of robust demand for commodities in the world’s No. 2 oil consuming country.

Climbing tensions in Egypt as protests and civil unrest continue as President Morsi has now given the Army the go ahead to make civilian arrests as Morsi is forced to reduce his proclamation of power declared last week. This week begins the constitution referendum for the new constitution as part of the peoples demand after the Arab Spring revolution, but the current proposed constitution is not acceptable to the people, who are turning out in bigger numbers than when they over through the prior regime. Morsi continues to review his options.

Syria is ignoring global pressures and it is likely that President Assad may begin to use chemical weapons against his people, which has tensions mounting as US President Obama warns the Assad regime against the use of these weapons.

Lower prices have been offset by the political tensions and the unresolved US Fiscal Cliff and the ever growing debt crisis in Europe.

Natural Gas is also weak as traders ditch the commodity in record numbers seeing NG fall to trade in the low 3.40 range, just a week after it was setting record highs at 3.99.