Reporter's Notebook: Commodities Rallies Are Vulnerable But Analysts See Support For Oil

CNBC's Sharon Epperson shared her morning notes from the NYMEX Tuesday morning:

Commodity rallies are very vulnerable right now. Concerns about slowing global growth prospects have increased after the EU and Chinese manufacturing data for May. There's a great deal of uncertainty over the end of QE2 (quantitative easing) and what that will mean for trading. And the easy trade that was short dollar/long euro/long commodities is no longer a sure bet with the mounting debt issues in the Eurozone.

Still, J.P. Morgan and now Morgan Stanley contend oil prices will find support from lost production (Libya's 1.5 million barrels still offline in the foreseeable future) and emerging market demand in the third and fourth quarters. Last night, Morgan Stanley raised its 2011 and 2012 Brent crude price forecasts to $120/barrel and $130/barrel, respectively, from $100/barrel and $105/barrel previously. J.P. Morgan reiterated yesterday that it sees Brent crude at $130 in 3Q 2011.

Goldman Sachs Tuesday reversed its recent bearish call on commodities Tuesday and advised clients to buy oil, copper and zinc. It now forecasts Brent will reach $120 in 2011 and $130 in the next 12 months.

So the slide we've seen in oil prices in the last two weeks could be short-lived if those predictions are correct. Another factor that could support oil prices—refinery glitches during peak demand season.

On Monday, Exxon Mobil's Joliet, Illinois refinery shut down a refined fuel processing unit, responsible for nearly 98000 barrels/day. Chicago cash market gas prices skyrocketed and RBOB futures at the NYMEX recovered nearly all previous losses on the day.

Add to that a bullish development—an explosion at Venezuela's Cardon refinery Monday that will likely further the delay in the reopening of that 310,000 barrel per day facility that's been shut since May 12.

For now, pump prices are at a five-week low, with the national average for regular gasoline firmly below $4 a gallon, but prices are still $1 higher than they were a year ago.

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