Market View on Crude Oil

Dear Investors

 

Benchmark Crude oil prices were down about $2/bbl on average in February, but the month on month sharp recovery in prices over the last three weeks of the month due to follwing factors-

 

1- Oil markets in  February were hit by the financial meltdown in Greece, with widespread fears the crisis would spread to the rest of the Eurozone, conspiring to push prices to six week lows.

2- In Nigeria, renewed violence and attacks on oil infrastructure resumed in February, threatening the country's oil exports yet again after more than six months of relative calm.

3-The global community appears to be moving closer to imposing tougher sanctions on Iran as the country continues to pursue its nuclear ambitions. Plans by the US, UK, Germany and France, among others, to tighten sanctions under the umbrella of the United Nations in response to Tehran's intransigence over its nuclear programme have been stymied by lack of support from China but this is not likely to deter countries from imposing their own tougher sanctions. While Iran has threatened to halt oil exports if further sanctions are implemented, the impact on the market would be muted by the current high levels of stocks.

 

By contrast, national elections in Iraq proceeded in relative calm on 7 March, which many now hope will improve the prospects for the strife torn country, especially its plans to boost oil production.Though it will likely take months for the government to build a working coalition, the elections provided a welcome boost in confidence for the country's new joint venture partners.

 

While concerns that geopolitical issues could affect oil supply flows from key OPEC producers added upward pressure to futures prices, physical oil supplies continued to provide a counter weight. Stocks, both onshore and at sea, have come in from peak levels but are still high. Non OPEC production is on course to rise by a further 300 kb/d in 2010, with Russian production setting new records in February.

 

OPEC production also increased to a 14 month high of 29.2 mb/d in February. In addition, refiners have scheduled a heavier than usual seasonal maintenance work programme over the next several months, which will reduce spot purchases of crude oil. Even China is slated to curtail refinery runs in March after four months of steadily higher throughput rates.The anticipated call on OPEC crude and stocks looks unlikely to breach 29.5 mb/d on a sustained basis, so market fundamentals should continue to provide a brake on upward price aspirations. Offsetting that, equity and currency markets could continue to play a more bullish role.

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