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Crude oil prices have fallen from their highs on concerns of a global economic slowdown. However, a negative macro-economic outlook does not warrant opening short positions in crude oil.

15 Oct 2011

NEW YORK (Commodity Online): Crude oil prices have fallen from their highs on concerns of a global economic slowdown. However, a negative macro-economic outlook does not warrant opening short positions in crude oil.

Though shorting crude oil may seem a natural trade in view of the possibility of world wide economic contraction, one has to consider the following factors

-Spare capacity is limited, the market is in too large a supply deficit as there is too much geopolitical risk in crude oil production.

-Producers are very determined to negate the effects of any shorting based on macro-economic climate.

-US oil inventories have fallen to their 5 year averages in the past two weeks at a rate of more than 1 million barrels per day. The inventory surplus is now mostly gone and stock levels are expected to fall below their 5 year average in the coming weeks.

NYMEX crude oil is currently trading around $86.50 after going below $76 in early October.

Source: Barclays Capital Commodities Research


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