Oil Prices to Extend Losses This Week: Survey
Oil prices will likely extend their losses this week as macro-economic data continues to call into question the durability and pace of the recovery, according to the latest CNBC weekly market poll.
All eight respondents either forecast prices to fall or remain little changed.
No one expected prices to rise. Front month Nymex crude futures declined 0.5 percent last week. Prices failed to hold around $80 a barrel as many in the market believe that the level isn't justified by the fundamental picture.
Markets will be particularly sensitive to two key themes this week: economic data in the U.S. and the threat of sovereign credit rating downgrades in Europe.
'The cloud of uncertainty currently associated with economic woes in Greece and other struggling European economies continues to hover over the price of crude oil,' said Gavin Wendt, Senior Resource Analyst at Mine Life Pty Ltd. 'Against this background it is difficult to see much immediate upside in the price of crude oil.'
Meanwhile, this week's U.S. economic numbers could be distorted by the recent severe weather, making it more challenging to discern the true health of the underlying economy and ultimately demand for fuels like gasoline and diesel.
Whether markets can look past the 'snow factor' -- particularly in Friday's February payrolls number-- will be crucial.
John J. Licata, Chief Investment Strategist at Blue Phoenix Inc., said the emphasis Fed Chief Ben Bernanke placed last week on the struggling jobs market in the U.S. 'is setting up everyone for further disappointment' ahead of this week's data.
'We need the jobs data to improve before oil prices can top my target of $87 by year-end,' Licata said. 'Oil can fall back down to $66 short-term.'
Market participants don't expect much support from weekly U.S. inventory numbers, which continue to show supplies are bloated reflecting anemic product demand.
Refinery strikes in France and cold weather in the northern hemisphere has helped cream off some of the excess distillate supply and prop up the broader energy complex. That said, bearish factors stand to overshadow the market, said Societe Generale analysts Michael Wittner and Remy Penin.
'Even if there is more cold weather to come, the winter is just about over,' they wrote. 'In addition, current and possibly future disruptions to air traffic in Europe (French air traffic controllers, British Airways, and possibly
Lufthansa again) put a damper on expected jet/kerosene demand.'
Gasoline looks no better. Stocks and days cover remain at or above 5-year highs, and there is little constructive in the fundamentals,' SocGen said.
Throw in well-supplied fuel markets, a U.S. dollar 'holding steady to bullish' and oil prices at technical price resistance, any 'upside potential is very slim,' said Mike Sander at Sander Capital Advisors. Sander forecasts Nymex crude to remain confined to a $76 to $79 a barrel trading range this week.
Meanwhile, Societe Generale's weekly oil market scoreboard has a 'neutral' rating for this week's price action.
'Despite current negative sentiment in the oil markets, our view is that the $70-85 range will hold in the near term,' write SocGen's Wittner and Penin.
Possibility of more OPEC cuts if needed and bullish longer-term fundamentals will set the price floor, they said. On the flipside, high product inventories and low refining margins will set the price ceiling.