Crude Oil Monthly Update - August 2012: Soaring Sweet Crude prices taken with a Pinch of Salt

India Infoline News Service | Mumbai |

Crude oil prices may consolidate within the price range of US$95-US$100/bbl in the near term.

Energy complex witnessed remarkable gains this month, with crude oil prices outperforming various asset classes. WTI crude and Brent crude registered mom gains of 8% & 7% respectively. Gains were accompanied with volatility, with WTI crude registering highs of US$98.3/bbl and lows of US$87.5/bbl. Persistent decline in US crude oil inventories, supply concerns emanating from declining North Sea oil output and hurricane threats bolstered the buying sentiment in the energy complex. Oil production facilities in North Sea are scheduled to be shut down for maintenance during September, which can hamper the oil supplies for the next few weeks from that region. Meanwhile, Brent premium to WTI crude has widened as high as US$23/bbl, as concerns about declining output from the North Sea provided upside impetus to Brent crude prices. However, the spread has softened to an extent and is now trading at US$17/bbl.


On weather front, hurricane concerns in U.S continued to provide considerable measure of support to the energy prices during the entire month. Initially, Ernesto hurricane was forecasted to arrive in the southern Gulf of Mexico where state oil company Pemex has port facilities and offshore platforms. Eventually, the potential threat to U.S. Gulf Coast energy infrastructure from Tropical Storm Ernesto dissipated. Later during this month, Tropical Storm Isaac was expected to reach U.S. Gulf of Mexico coast. It was forecasted to strengthen into a Category 2 hurricane with top winds of 100 mph. On production front, the storm temporarily had shut down 80% of U.S. offshore oil production capacity for two days. However at this juncture, concerns of storm have subsided, as Hurricane Isaac has made landfall in Louisiana and is not expected to do much damage to refining units in U.S. Gulf of Mexico.


In the meantime, rumor mills were churning reports that U.S is contemplating at the strategy for a potential release of oil reserves to rein in surging gasoline prices in the world's largest economy. Ultimately, White House's plans have moved to the backburner, as it is widely opposed by its Asian allies as well as the International Energy Agency.


On the global fundamental front, oil demand remains weak impacted by uncongenial macroeconomic landscape in U.S, Europe and China. Conversely, supply remains comfortable, as both OPEC and non-OPEC production continues to increase. World oil demand grew by 0.6% during Jan-Jul 2012 on a yoy basis, while global supply grew at 3.3%. The average global market balance during the seven months of 2012 stood at a surplus of 1.9mbpd, while the same period during the previous year witnessed a deficit of 0.5mbpd.


Crude oil prices may consolidate within the price range of US$95-US$100/bbl in the near term. However in the absence of any positive trigger on the demand side, crude oil prices can eventually drift lower in the price range of US$85-US$90/bbl during the next few weeks. Prevalent demand and supply variables do not justify oil prices sustaining near US$100/bbl odd levels. On domestic front, Crude oil prices have flirted with Rs5420/bbl resistance but have failed to breach the same. Breach below Rs5275/bbl will exert lower pressure towards the psychological level of Rs5000/bbl.


Crude Oil Snapshot

  Aug-12 Jul-12 mom (%) Aug-11 yoy (%) YTD (%) Avg YTD'12 Avg'11
*Price (US$/barrel)                
WTI Crude 95 88 8 89 7 (3) 96 95
Brent Crude 112 105 7 115 (2) 5 112 111
WTI /Brent Spread (17) (17) -- (26) -- -- (16) (16)
OPEC Crude basket 112 102 10 111 1 5 110 107

Source: Bloomberg, India Infoline Research 
* Prices as on 28th August, 2012

 

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