Oil market sentiment is split this week as investors balance headline risk over the escalating debt crisis in Europe with expectations of further stimulus efforts from the U.S. Federal Reserve, CNBC's weekly survey showed.
Four out of 12 respondents, expect prices to drop. Meanwhile, another third forecast price rises, while the remainder expected no change.
"One of the many problems in Europe is that there is one monetary policy and 17 fiscal policies, which make it tremendously difficult to keep any consistent and cohesive growth," said Andre Julian, CFO, OpVest Wealth Management. "Although steps continue to be made, it is difficult to get commitment from market participants until a clearly outlined plan is forged and implemented."
On balance, the main supportive theme for oil this week, argues Julian, "may be a resounding support of 'Operation Twist' or some other variation of stimulus by the U.S. Fed during their two-day FOMC meeting."
U.S. crude futures settled $1.44 a barrel lower on Friday at $87.96. Still, futures rose 72 cents for the week, or 0.83 percent, extending gains to a fourth week and confirming the view of CNBC's survey for that week.
Brent crude futures, however, went the opposite direction closing Friday at $112.22 a barrel, after sliding 55 cents, or 0.49 percent, last week. Brent's premium to West Texas Intermediate narrowed from the record $26.87 on September. 6 based on front-month settlement prices.
"The trend for Brent outperformance is likely to continue," said Dhiren Sarin, Chief Technical Strategist, Asia Pacific at Barclays Capital. "Markets are likely to be focusing on both events (Europe debt crisis and FOMC) and more so whether the recent trend for U.S. dollar short-covering continues in Asia. We are neutral for oil while it stays within the $108 to $115.50 range with a tip in either direction needed to set the directional tone."
From a technical perspective, Daryl Guppy, CEO of Guppytraders.com, is bullish crude this week. He expects "some consolidation around $88 and then test a $98 technical resistance and $100 psychological resistance," referring to Nymex crude.
Tom James, Chairman & Co-Founder of Navitas Resources expects the U.S. dollar to continue to draw a safe-haven bid should Europe continue to under perform. "Europe will get worse before it gets better and people will buy dollars as it'll be the prettier of the uglier ducklings. The dollar should benefit which will depress commodity prices a bit."
Towards the end of last week, global markets found a firmer footing after central banks including the Federal Reserve, Bank of England, European Central Bank and Bank of Japan agreed to coordinate policies to help provide more dollar liquidity for European Banks struggling to access short term credit markets after major U.S. money market funds started reducing their exposure to Europe because of escalating debt problems in the region.
That's raising expectations of possibly more collective action by the G20, International Monetary Fund and the World Bank when they meet in Washington D.C. Thursday and Friday.
"It seems leaders of central banks know that the kitchen sink is simply not enough to throw at the financial markets," said John J. Licata, CEO and Chief Commodity Strategist at Blue Phoenix Inc. "This is good -- this means creativity and like minds working collectively (not pitted against each other) could yield better results since acknowledging that this is an "us" problem rather than a "them" issue is a great start."
Leaders "may embrace the concept of throwing the kitchen 'refrigerator' at this financial crisis," Licata said. "This means that gold could suffer from an asset allocation shift back into WTI crude oil. With WTI trading at such a discount to Brent , we believe WTI can rebound and test $95 by the end of the year."
Licata also noted recent developments in the U.S. refining business may provide a bullish theme for the broader energy complex this year. Sunoco Inc on September 6 announced it would exit the oil-refining business as fast as possible and in the process possibly shut a huge chunk of the U.S. East Coast's refining capacity.
The company is seeking buyers for its 335,000-barrels-per-day Philadelphia refinery or the nearby 178,000-bpd Marcus Hook facility. At a combined 513,000 bpd, the two refineries represent nearly a third of the "operable" refinery capacity on the East Coast, according to the Energy Information Administration.
"Valero and Sunoco cutting refining exposure on the East Coast may ultimately be good for their respective margins but their expertise could cause a hole in the refining bicycle spoke which could cause heat cracks to throttle higher this winter," Licata said, referring to the profit margin that an oil refinery can expect to make by 'cracking' crude oil into heating oil. "La Nina is back according to NOAA and unless you are subscribing to the Jimmy Carter "just put a sweater on" theory, so is WTI crude before year-end."