Commodity Online
Crude oil is the only stronger commodity with in the energy complex as of now but its own fundamentals look fragile in the medium term with occasional support given by rising equities, forex and expanding money supply.
Recent spurt in WTI crude was in large measure to low gasoline stocks in USA even as driving season was in progress.
In electricity generation, demand remains depressed for fuel all around the world and there is plenty of coal and gas to go about. With the driving season coming to an end and middle distillate stocks brimming, global energy markets will need to rely squarely on crude oil for any price support over the coming months, according to Merrill Lynch.
One possibility is of a tight natural gas market enabling speedy clean up of excess heating oil inventories as Europe and US head into the winter. But then again, the global natural gas market remains vastly oversupplied. On a calorific value equivalent basis, spot natural gas prices are extremely low, trading in line with coal both in the United States and in Europe. Even if the global natural gas supply/demand balance started to improve in the coming months, natural gas stocks in the United States are extremely high.
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What is certain is the fact oil demand is still extremely weak and total OECD petroleum stocks are at very high levels. OPEC crude production is estimated to be going up all of which could put WTI crude on a bearish trend soon. The price appreciation in recent times was caused also due to OPEC production cuts.
With US consumer confidence retreating as per latest reports, any upside movement of crude is likely to be capped at near $75 levels. Real economic indicators worldwide do not suggest a real economic recovery, which is not supportive of crude oil. Merril Lynch suggests that, with the end of the driving season and plenty of distillates in store, energy prices will need to rely on the strength of crude oil to push higher.
Oil prices might truggle to push much higher from the current levels over the next three months, even some downside to WTI crude oil prices in 3Q09 cannot be ruled out.
