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Crude steadier but downside risks remain

Last updated 6/19/2012 12:52 PM ET (GMT -5) 0 Comments - Add your comment

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David Morrison

Market Strategist, GFT

Follow @DMorrison_GFT

Crude prices steadied as today’s trading session progressed, although in early trade Brent hit its lowest level since early January 2011. The WTI contract looks as if it may be forming a base following a protracted sell-off which began at the beginning of May. It has managed to hold above $81.50 although it is struggling to break back above $84.30. This level marks the 23.6% Fibonacci retracement of the May-October 2011 sell-off. Oil prices have retreated as the global economic outlook has deteriorated, as demand for crude looks set to moderate further. In addition, supplies remain adequate and data from last month showed that OPEC members were still exceeding the cartel’s production ceiling of 30 million barrels per day. However, there are concerns that tensions between Iran and the West could be on the rise again ahead of EU sanctions which are due to begin in July. This could see speculative buyers return to the market. At the time of writing, there was no concrete news from today’s talks in Moscow between Tehran and six world powers. But it is the US Federal Reserve which could hold the key to oil& #8217;s price in the short-term. The FOMC concludes its two-day meeting tomorrow. If the committee members decide that further aggressive stimulus measures are warranted, then we can expect the dollar to fall and oil to rise. When QE2 was signalled by Ben Bernanke back in August 2010, WTI rallied nearly 55% over the following nine months. However, while equities are sharply higher this afternoon, and appear to be anticipating further action from the Fed, oil traders seem less convinced. 

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.