Surge in demand to support crude price

Tags: Commodities

US growth pulse, Fed money policy, revival in China and EU, any significant political development in West Asia will swing oil counter

Surge in demand to support crude price
Crude oil prices have been closely following the economic data from the US and China and the growth pulse of the EU region for direction. Being the top oil consumers, these economies have a major impact on crude oil demand and the direction of its price. In calendar 2013, we expect the growth patterns of these economies to continue to impact crude prices.

Along with the demand-side factors, Opec policies on the production side are crucial for crude prices. Any change in the production quotas of the oil-producing nations will have a significant impact on crude prices.

Another major factor that provides short-term direction to crude prices is the weekly inventory level in the US, which is indicated by the weekly data released every Wednesday. This data is important for short-term price direction. As per available data, the inventory level of crude oil has been rising consistently in the US over the past few months, due to which there has been pressure on crude prices at higher levels and, hence, they have been unable to move up. Going ahead, we expect the weekly inventory level to be an important factor to provide short-term direction to crude oil prices.

Thus, the major factors that are likely influence crude price movement in the new calendar would be: US economic growth scenario, the monetary policy of the US Federal Reserve, China’s economic growth, economic scenario of the EU region, Opec policies related to oil production quota, weekly crude oil inventory report and any significant political development in West Asia.

Outlook: China’s oil demand is poised to rise the most in two years this quarter as the world’s second-biggest crude user shows signs of weathering a global economic slowdown. Consumption will jump by at least 400,000 barrels a day in the three months ending December 31 from the previous quarter, according to the International Energy Agency.

As per recent data flow, China’s economy has started showing signs of reversal from its downtrend. This will be a bullish signal for crude oil. As per International Energy Agency’s (IEA) monthly report released on December 12, global oil consumption will average 90.5 million barrels a day in the fourth quarter, about 435,000 barrels, or 0.5 per cent more than previously forecast, as per the monthly report of IEA.

Demand will expand by 865,000 barrels a day in 2013 to 90.5 million, adding 110,000 barrels to a previous outlook. This indicates growing demand for crude oil, which will be supportive of prices. The EU region’s economy is still not out of the woods. Going ahead, if the European economy continues to depict sluggish growth, it will have a bearish impact on crude prices.

Technically, crude oil is expected to remain sideways in the short- to medium- term. Only a break above $91 will likely turn the trend bullish for crude oil, while on the downside it will have support at $80.

At MCX, Rs 5,000 (per barrel) is crucial for any upside movement, while the key support level is Rs 4,500. Only a breakout of

this range will confirm a trend either side. zz

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