Benchmark crude oil prices may rise this week though renewed political uncertainty in the euro zone will limit any upside moves, CNBC's weekly survey of market sentiment showed.
Less than 50 percent, or five out of 12 respondents, polled in a weekly CNBC poll of analysts and traders, expect oil prices to rise this week. Four respondents believe prices will fall while three expect levels to be unchanged.
From a technical basis, the charts look constructive for U.S. crude futures this week, noted Sandy Jadeja, Chief Technical Analyst at City Index. That said, prices "must remain above $101.80 to remain bullish" otherwise oil may head lower towards $98. "Short term continues to see choppy price action."
That price action may continue to be dictated to by supply-side risks notably from Iran and South Sudan.
Satellite images show a key part of the oil infrastructure in Sudan's contested Heglig region was destroyed during recent border fighting with South Sudan, a monitoring group said on Sunday. South Sudan seized Heglig, a border region which accounts for about half Sudan's 115,000 barrel-a-day oil output, on April 10, saying it was acting in self defense after Sudan launched a ground attack from the area, Reuters reported.
"One reason why flat prices may not see more pressure is because nobody would want to get caught in a short position in case political risk gets inflamed or supply shortfalls hit the newswires," said Johannes Benigni, Managing Director at JBC Energy.
Stresses in the euro zone are likely to take center-stage this week.
Talks over measures to slash the Dutch government's budget deficit collapsed over the weekend after seven weeks of negotiations, raising questions about the commitment of one of the euro zone's foremost proponents of fiscal stringency to a German-led austerity agenda, the Wall Street Journal reported.
"The collapse of Dutch budget negotiations not only threatens early elections in the
Netherlands, but also poses a significant threat to effective ratification of the fiscal
compact, a central plank in Angela Merkel's strategy for addressing the eur ozone crisis," wrote Alastair Newton, Nomura's Senior Political Analyst in a report.
Meanwhile, French Socialist Party's presidential candidate Francois Hollande, who came ahead in the elections' first round on Sunday evening, called for voters of all the left-wing candidates to support him and pledged to lead the European Union towards more growth.
Some investors believe a Hollande victory would partially reverse momentum towards fiscal reforms involving austerity programs and spending cuts.
"I do not think we have seen the worst of the euro zone crisis yet and an increasingly likely Hollande victory in France could complicate already straining coordination between Germany and France," said Kirk Howell, Chief Operating Officer, of SunGard's energy and commodities business SunGard Kiodex. "I remain short term bearish as long as we don't settle above $104.90" for U.S. crude futures.
Michael Ivanovitch, President of MSI-Global, however, argues Hollande "will not blow-up" the European agreement. "He just wants more balance between fiscal austerity and growth," he told CNBC's 'Squawk Box' last Friday.
Whatever direction the political winds blow, the key factor for oil prices and cyclical commodity markets broadly will be the direction of the single currency. The euro retreated from two-week highs against the dollar on Monday, pausing after its best weekly performance since February. The single currency stood at $1.3189 in Asia, down from Friday's peak of $1.3225. But this decline came after a near 1 percent rally last week, its best since late February.
"The canary in the coal mine is EUR/USD and we are keeping an eye on that as a break below $1.2970 would be a bullish USD warning, in turn likely triggering a deeper pullback for energy," said Dhiren Sarin, Chief Technical Strategist Asia-Pac at Barclays Capital.
The release of HSBC's flash China PMI manufacturing data for April will help inform commodity markets how factory activity is holding up in the world's second-largest economy.
The data showed factory activity rose to a two-month high in April. HSBC's Flash PMI rose to 49.1 in April from the final reading of 48.3 in March, confirming expectations that the economy bottomed out in the first quarter, says Nomura economist Zhang Zhiwei.
Investors may cut bullish bets on oil should the Federal Reserve douse expectations of further stimulus at its two-day policy-setting meeting starting this Tuesday. Despite the recent run of mixed U.S. economic data, most economists on balance don't think the numbers warrant further policy stimulus. In fact, expectations are high that the Fed may raise their growth forecast for the economy.
"Our U.S. economics team expects that the Fed is likely to upgrade economic outlook slightly," Deutsche bank commodities analysts wrote in a report. "This means that Operation Twist will end as scheduled in June. Chairman Bernanke will hold a press conference following the meeting. It is here that we could learn more about the prospects of further quantitative easing or "twist" type initiatives."