Oil Seen Flat; Europe, Iran Remain Wildcards: Survey
Benchmark crude oil prices will remain little changed as activity dries up during the holiday week although traders warned fears over possible supply disruptions from OPEC member Iran and the lingering European debt crisis may keep the market on edge, CNBC's weekly survey showed.
Sixty percent, or six out of the week's sample group of 10 respondents, said prices would be unchanged this week, two said they would rise while two said prices would fall.
“An Iran scare is always a possibility… probably would short on a pop,” said PFGBest’s Tom Weber, who described his position as “neutral-ish” ahead of the year-end.
Japanese Foreign Minister Koichiro Gemba on Monday said there is a danger of hurting the global economy if imports of Iranian crude oil stop, commenting on U.S. legislation that targets the Iranian central bank.
“Specifically in relation to the (U.S.) national defense authorization act, which targets the central bank of Iran, I conveyed my view that there is a danger of causing damage to the entire global economy if the imports of Iranian crude oil stop," Gemba said after talks with Secretary of State Hillary Clinton.
Both houses of the U.S. Congress last week passed a defense bill that included provisions that would impose sanctions on foreign financial institutions that do business with Iran's central bank, the main conduit for its oil revenues.
Andre Julian, Chief Financial Officer at OpVest - Option Investments, said equities markets were exerting, and would continue to exert, a strong influence on crude oil prices .
“With all the uncertainty in the markets, it is quite clear that crude oil and the equity markets are along for the same ride, in the same vehicle, heading toward the same destination,” Julian said.
“Until we see a separation in this relationship there is more risk to the downside based on the global economic fundamentals heading into the week. We remain neutral to bearish, but cautiously protect our position because it only takes one headline to change the price path that crude is on.”
Julian noted “a strong correlation” between the global stock markets and the price of oil over the past six months.
“There is about a 95 percent positive correlation between the S&P 500 index and the MSCI world stock index, and about a 95 percent correlation between these two indexes and the price of oil. This relationship implies “that all the fundamental and technical analysis in the world can be trumped with one piece of news that sets all markets spinning,” he said.
From a technical perspective, Dhiren Sarin, Barclays Capital's Chief Technical Strategist — Asia-Pac, said technical charts suggested a pullback may be on the short term horizon.
“Brent crude appears to have completed a topping formation on the break below the $106/07 area; the move likely signals further weakness especially as sharp U.S. dollar strength is increasingly having a negative effect on various commodities,” he said. “For WTI crude, as such, the risk is for a deeper pullback into year end towards $90.40.”