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Bleak Outlook for Crude Oil

November 18, 2012 at 20:25 by Vladimir Vyun

Crude oil has been somewhat soft recently, though prices have stabilized in the last two weeks. Does that mean that the downward trend has changed? In fact, not likely.

The traders’ mood is not supportive for raw materials, including crude. The threat of so-called fiscal cliff in the United States was the major theme in the recent news, driving investors away from riskier assets. There were some positive developments on Friday, but the problem is far from being resolved. The vast majority of macroeconomic reports from the USA this week were bad, adding to concerns.

Eurozone remained in recession, meaning that prospects for oil demand continue to worsen. Europe’s troubles were overshadowed by the US theme this week, but that does not mean that they should be forgotten completely. In fact, the Greek theme will likely soon return to the forefront of newswires as the troika members argue among themselves if the indebted country should receive another portion of a bailout.

As for positive factors for crude oil, the clash between Hamas-controlled Gaza Strip and Israel caused worries about supply disruptions. Traders fear that the conflict could spread to whole Middle East and such worries add strength to the commodity.

The Organization of Petroleum Exporting Nations predicted in its Monthly Oil Market Report that world demand will rise from 89.44 million barrels per day in the third quarter of this year to 90.01 million in the fourth quarter. The forecast could have been bullish if not the fact that global supply (except OPEC production) is expected to grow even faster from 58.31 million barrels per day in Q3 2012 to 59.42 million in Q4.

Another piece of news that spooked investors was the Short-term Energy Outlook by the US Energy Information Administration. The EIA forecast that WTI crude will trade at $89 per barrel in Q4 2012, $4 below the previous estimate. The prediction for Brent crude was at $110 per barrel, $1 lower than the previous month’s outlook.

If you have any questions and comments on crude oil today, use the form below to reply.

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