Weak Dollar Helps Crude Oil Climb

WTI crude oil climbed sharply yesterday after the U.S. Federal Reserve announced plans for more monetary stimulus. The Fed’s announcement overshadowed a decision by the Organization of the Petroleum Exporting Countries (OPEC) to leave its output targets unchanged, despite estimates indicating demand for its crude will be lower next year in the face of rising shale oil output in the United States. Further support came from the IEA, which revised its estimate of global oil demand substantially higher for the last three months of this year, and also said consumption would be stronger than previously forecast in 2013. The OPEC ministers agreed to retain the producer group’s 30-million barrel-a-day output target but many market observers think supply restrictions will be needed next year if they want to stop rising inventories from weighing on prices.

As per the International Energy Agency (IEA) global oil consumption in the last quarter of 2012 will be at an average of 90.5 million barrels a day which is 0.5 percent or 435,000 barrels higher than the previous forecast. Also the agency forecasted that for 2013 demand will rise by 865,000 barrels a day to 90.5 million barrels a day, a rise of 110,000 barrels as estimated earlier. Also it is assumed that China world’s second largest consumer of crude oil after US will use 9.9 million barrels a day in the fourth quarter of 2012, a gain of 115,000 then previous forecasts and will be at an average of 9.8 million barrels a day in the next year

The US has determined to turn up the heat on Iran by adding gold transactions and physical purchases to the list of embargoed items and transactions making it harder on the Iranians to export oil. Difficulty in securing cargo ships and transportation have already hurt exports, combined with limiting funds transfers for payment and the lack of insurance on the valuable cargo. The addition of gold to the embargo items will tighten the noose around Iran.

Crude oil stockpiles rose 843,000 barrels, Gasoline inventories rose 5mn barrels and Distillate stockpiles gained 2.99mn barrels as per the EIA weekly report, surprising markets which expected a decrease in inventory.

The US dollar remained weak after the FOMC added additional stimulus and changed its operational methods, now hooking monetary policy directly to an unemployment rate of 6.5%. The weak dollar helps dollar denominated commodities as it makes then cheaper to foreign investors. Traders are apprehensive to add new positions with looming tax increases for next year with negotiations still underway by US lawmakers. Tax changes could have serious implications next year on capital gains from the sale or trade of commodities.

With higher inventories and tax uncertainties crude oil is expected to remain in its current range unless geopolitical tensions kick up unexpectedly in the Middle East.

Natural gas futures closed lower for a fifth straight session, as comfortable supplies and forecasts for relatively mild weather through next week drove the front-month contract to another 6-week low.