Crude Oil declined sharply yesterday after data announced a massive rise in US Crude Oil inventories, the highest since March & also on news of Saudi efforts to tame Crude Oil Prices. The Crude Oil Price dip continued today as a gauge of Chinese manufacturing shrank and Japanese exports declined, signaling fuel demand may be easing in the world’s biggest Crude Oil consumers. Crude Oil slipped over 3.5% yesterday, in the longest losing streak since June this year. US Crude Oil inventory surged 8.5 million barrels last week as Gulf of Mexico production resumed after Hurricane Isaac. Technical selling pushed Crude Oil to the lowest in six weeks. Big hedge funds were seen liquidating bullish positions built ahead of the Federal Reserves’ third dose of stimulus, announced last week. In the past 10 weeks, big speculators and hedge funds added nearly 100,000 net long positions, equivalent to 100 million barrels, in US Crude Oil options futures contracts. It was one of the biggest and fastest such build-ups since 2010. The week’s slide in Crude Oil to over 7% was enhanced after a Gulf source said Saudi Arabia would act to lower prices that hit four-month peaks on Friday.
West Texas Intermediate – WTI Crude Oil for October delivery contract which expires today is seen creeping below the psychological level of $90 & the more-active November Crude Oil futures were below $91. Brent oil for November settlement fell 94 cents to $107.25 a barrel on the London-based ICE Futures Europe exchange. Total Brent Crude Oil trading volume was 47% above the 30-day average, with US Crude Oil turnover 40% above its 30-day average. Stockpiles of gasoline and of distillate fuel, a category that includes heating oil and diesel, declined. Gasoline stocks fell 1.41 million barrels last week, while total distillate inventories dipped 322,000 barrels, the EIA’s weekly report said. US distillate demand over the four-weeks to Sept. 14 was down 11.2 percent versus the year-ago period. Refinery operating rates rose to 88.9% from the previous week’s 84.7% as plants resumed units idled when Hurricane Isaac made landfall on Aug. 28. US imports of crude oil jumped by 1.28 million barrels per day to 9.81 million barrels per day. Net crude oil imports hit their highest weekly level since January. The US, China and Japan accounted for about 37% of the world’s Crude Oil consumption last year.
Crude Oil has a substantial support at $90 & could consolidate around this level for a fresh bounce up towards its first resistance of $97.30 & then a stronger one at $100. A decline with large volumes & sustained momentum below this psychological level of $90 could lead to further falls towards $79.75. Crude Oil will get highly bullish on a break above $100 for the longer term with immediate resistances seen then at $108.10 & then at $114.50. With so many simultaneous & large Monetary Easing programs announced by several important Central Banks, liquidity is abundant & will sooner than later trigger Inflation. Crude Oil Price rise is generally the biggest contributor towards global inflation rises. I am of the view that the huge longs (including Hedge Funds) build up in Crude Oil Futures around the timings of these Quantitative Easing announcements, made them sitting ducks for a sharp & sudden manipulated blow in the opposite direction. Crude Oil may soon resume its ideal course.
The global Crude Oil market is well supplied, OPEC Secretary- General Abdalla Salem El-Badri said in a speech yesterday. The OPEC – Organization of Petroleum Exporting Countries’ spare production capacity is at “comfortable levels,” and commercial inventories “remain healthy,” Badri said at the European Mineral Resources Conference inLeoben, Austria, according to a transcript on OPEC’s website. Saudi Arabia’s crude oil exports fell 7% to 7.29 million barrels a day in July, a month when the nation’s crude oil production averaged 9.8 million a day, according to statistics the government submitted to OPEC and posted on the Joint Organizations Data Initiative’s website yesterday. Brent Oil eased below $108 a barrel after data showed China’s manufacturing activity continued to contract, weakening sentiment further in a market already reeling from Saudi Arabia’s pledge to keep global oil prices low. Saudi oil minister Ali-al Naimi last week said the world’s top oil exporter was ready to take action to calm rising prices of Crude Oil, which he said were not supported by market fundamentals.
The HSBC Flash China manufacturing purchasing index (PMI) for September was 47.8, well below the 50-mark that separates contraction from expansion, although a shade higher than the nine-month low of 47.6 reached in August. The Chinese data comes a day after the Ministry of Commerce said export outlook in the world’s No. 2 oil consumer was poor and demand would remain weak in the next few months. Analysts said the Chinese Economic Data might be a sign that the slowdown in the economy is coming to an end, which in turn may limit expectations of stimulus action from the authorities and weigh on the country’s demand for commodities, reported Reuters. “If China hits a wall, and Europe falls out from under us, then we’re going to be falling back into a recession, and that could be worse than the Great Depression,” said Tony Nunan, an oil risk manager at Mitsubishi Corp in Tokyo.
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