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Oil Could Test $90, but Stimulus 'Obsession' to Limit Losses: Survey

Sri Jegarajah|Reporter, CNBC Asia Pacific
Monday, 14 May 2012 | 11:39 PM ET

Benchmark crude oil prices will likely continue falling this week, possibly testing $90 a barrel, after U.S. employment data missed forecasts and election results in France and Greece showed voters rejecting German-led austerity measures, CNBC's weekly survey of market sentiment showed.

Seth Joel | Photographer's Choice RF | Getty Images

But expectations that the weaker economic outlook may build the case for further stimulus from the Federal Reserve or the European Central Bank could limit any move lower, respondents said.

Kirk Howell, Chief Operating Officer, of SunGard's energy and commodities business SunGard Kiodex, said prices could drop by another $7-10/bbl over the next few weeks as "economic data out over the last week has further confirmed we likely have not seen the worst of the situation in Europe and the recovery in the U.S. is tepid at best."

U.S. crude futures dropped more than $3 a barrel and Brent crude also fell more than $2.50 a barrel on Sunday after Greek voters mauled pro-bailout parties while French voters ousted incumbent President Nicolas Sarkozy, a key architect of bailouts for indebted countries and an advocate of austerity measures.

On the New York Mercantile Exchange, crude for June delivery fell to $95.42, down $3.07, or 3.14 percent as of 2230 GMT. Brent crude lost $2.73 a barrel, or 2.41 percent, at $110.45.

The after-hours slide extends Friday's 4 percent slide for U.S. crude futures and 2.5 percent drop for Brent after U.S. Labor Department data showed the world's largest economy created fewer jobs in April than forecast.

"This move on Friday indicates that we're going to reconnect with the trading range between of about $93 and $98 a barrel," said Michael McCarthy, Chief Market Strategist CMC Markets in Sydney. " If we get that lower band holding, we could see a steadying of the oil markets but it certainly appears in the short term the risks for oil are on the downside."

Bullish Technicals 'Intact'

Despite the heavy losses, strategists, traders and analysts polled in CNBC's weekly oil sentiment survey were not unanimously convinced oil prices would head lower.

Less than 40 percent, or five out of 13 respondents, polled in a weekly CNBC poll of analysts and traders, expect oil prices to fall this week. Five respondents believe prices will be unchanged while three forecast a gain.

Technical oil traders remained unmoved by the sell-down. In fact many, including Daryl Guppy, CEO of Guppytraders.com, maintained his belief that the uptrend in oil prices will hold. "The mid-uptrend inverted head and shoulder bullish pattern remains intact," he said. Sandy Jadeja, Chief Technical Analyst at City Index, agreed: "The bullish trend continues and with the break above $105 (for U.S. futures earlier this month) this confirms the momentum to the upside is intact."

Meanwhile, others in the bull camp believe the weaker economic indicators in the U.S. and the Eurozone may build the case for additional support to stabilize the economy, paving the way for a stimulus-induced rally in risk assets.

"I see commodities, in general, in a bit of a downtrend for the next few months. Economic data isn't really very exciting, so equities want QE, but we all know we'll pay for that badly in the long run," said Tom Weber, at Portfolio Managers, Inc. Commodity Futures & Options in Los Angeles.

John Kilduff, a partner at Again Capital added: "The economic data is not good enough to support higher levels (in oil prices), but is good enough to stave off the idea of further monetary easing."

CMC Markets' Michael McCarthy said the data didn't warrant another infusion of stimulus. "We can never say never in markets but the U.S. Fed has been very clear about the conditions required for further stimulus," McCarthy said. "The markets are obsessed with potential monetary stimulus because frankly, it led to some very successful trading and very big profits for them. They'd love to see another one because it represents another easy trade for them but the reality of the economic data suggests we're still a very long way away from that."

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