Oil Prices to Stabilize as Geopolitics Offset Weaker Data: Survey

Oil prices will likely steady this week as renewed fears of supply disruption from the Middle East and North Africa are offset by signs of an economic slowdown in the developed world, according to the findings of the latest CNBC survey.

Tawke oil field near the town of Zacho in Dohuk province about 250 miles north of Baghdad, Iraq.
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Tawke oil field near the town of Zacho in Dohuk province about 250 miles north of Baghdad, Iraq.

U.S. crude futures on Friday settled lower at $100.22 a barrel, taking the weekly loss to 0.36 percent, after volatile trading, as a grim May employment report weighed on prices but the weak dollar and Middle East violence helped limit losses.

A CNBC poll of analysts and traders revealed prices may struggle to break out of a restricted trading range this week. Nine out of the 11 respondents are calling for prices to hold steady, one expects prices to fall and one forecast prices to rise.

"Global turmoil (in the Middle East and North Africa) says bullish. Economic slowdown says bearish," said David R Kotok, Chairman & Chief Investment Officer at Cumberland Advisors. "Tug of war underway. I'm neutral on positions."

Tom Weber, Managing Director at PFGBest in Los Angeles also has a 'neutral' on the oil market this week. That's down to "a real battle" between global geopolitical macro events and data signaling economic slowdown. From a strategy perspective, Weber said he's stepped away from futures and is also using option trades "to collect premium using time decay."

A key theme in the global economy continues to be how robust Asian demand is creating a floor in the price of oil.

"China and Japan are an offset to the soft patch that developed economies have hit," said Linda Rafield, Senior Oil Analyst at Platts. Although latest U.S. government inventory data suggested a modest pickup in demand for the summer driving season, which traditionally starts during the Memorial Day weekend, Rafield said it could be much weaker, reflecting the impact of surging gasoline prices. "Driving season could be a repeat of 2010 — a bust. The job picture combined with still-high prices at the pump does not bode well for a pick up in gasoline demand this summer."

Rafield has a neutral call on prices this week and said U.S. futures could trade "on both sides of $100 and Brent between $110-$115."

A downside risk to prices may emerge during the Organization of Petroleum Exporting Countries' policy meeting in Vienna scheduled Wednesday. According to Reuters, OPEC members will push for an increase in production quotasby at least one million barrels a day.

As always, the position of Saudi Arabia - the de facto OPEC leader and swing producer - will ultimately determine the final outcome. Still, the meeting may witness some tension between the OPEC members who support higher oil prices, such as Iran, and Saudi Arabia, which is viewed as a moderate voice within OPEC.

"OPEC's meeting will be a key focus - and a hike in production target will weigh on the oil market," said Serene Lim, Oil Analyst at ANZ Bank in Singapore. "Further chatter out of the Euro zone periphery front with regard to the Greek debt outcome may find EUR support on dips, strengthening bias on the Euro will offset bearish OPEC news."