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Oil constrained by high supply, weaker US growth

Monday, 21 Oct 2013 | 9:52 AM ET
Henrik Jonsson | E+ | Getty Images

Benchmark U.S. crude prices may dip further below $100 a barrel this week, reflecting favorable supply dynamics and weaker growth prospects in the U.S., according to CNBC's latest market survey of traders, analysts and strategists.

Almost three-quarters of the respondents in CNBC's latest poll of oil market sentiment (18 out of 25) believe prices will fall this week, 20 percent (5 out 25) expect gains and 8 percent (2 out of 25) are neutral.

U.S. crude fell below $100 per barrel on Monday amid pressure from strong supplies, but losses were limited by hopes the U.S. Federal Reserve will delay curbing its money printing program until next year, helping shore up the demand outlook, Reuters reported.

(Read more: US oil drops below $100 for first time in 3 months)

Strategists said U.S. crude futures' breach of the triple-digit level, for the first time since July 3, paved the way for a further slide. "$100 U.S. oil is key," said Jonathan Barratt, chief executive officer of Sydney-based commodity research firm Barratt's Bulletin, targeting next key support levels at $97 and then $85.

A sub-par September U.S. jobs report on Tuesday may provide the catalyst for further oil price weakness, said Carl Larry, president of Houston-based consultancy Oil Outlooks and Opinions. He added that last week's jobless claims numbers could bode ill for this week's closely watched non-farm payrolls.

Initial claims for state unemployment benefits fell 15,000 to a seasonally adjusted 358,000, the Labor Department said last Thursday, slipping from a six-month high the prior week. But the figure was still elevated, as California battled with a backlog related to computer problems. Economists polled by Reuters had expected first-time applications to fall further, to 335,000.

"It's not 'the economy stupid', it's the stupid economy," Larry said. The latest jobless claims data "Is not a good sign for the U.S. recovery and even worse for the outlook for demand...we may see the same repeated when we see the unemployment numbers," he continued.

(Read more: Eni CEO says Libya can be the next oil and gas paradise)

A perceived drop in in the political temperature in the Middle East, combined with improved supply fundamentals in the U.S., will still keep prices in check, strategists and traders added.

"High over-supplies (despite a strong drop in OPEC exports) and improving geo-political climate are likely to take their toll," said Commerzbank's head of commodity research, Eugen Weinberg.

Analysts who examined technical indicators also forecasted tamer price action.

"It is looking toppy on the charts," said Tom James, director and co-founder of Navitas Resources. "Charts and fundamentals are looking for a softer market. Brent crude has been trading between the top of the Bollinger band, and has key support at $106. We're not expecting a drop below that, but the market will struggle to move higher."

Saxo Bank's Ole Hansen added that brent crude "looks like it could have another leg down towards $105, from where support should be re-established".

(Watch: Oil resurgence in the Lone Star State)

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