Possible OPEC supply cuts, the delayed return of Libyan oil and peak winter heating fuel demand may provide pockets of support to benchmark crude oil prices during an otherwise grim final quarter plagued by global growth concerns, CNBC's weekly survey showed.
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A Petroleos Mexicanos (PEMEX) oil rig near the shores of the state of Campeche, Mexico.
Eight out 12 respondents, said prices would fall this week. "$70 is the new $90," said Peter McGuire, CEO of FX Global Capital, referring to a downside target for U.S. crude oil futures that may be tested if global investors continue to flee assets closely correlated to the economy.
U.S. crude futures broke below $80 last week and fell 17 percent in the third quarter marking the worst performance for U.S. crude since the height of the financial crisis in late 2008. In London, ICE Brent crude fell $9.72, or 8.64 percent for the third quarter, the biggest percentage loss since the second quarter of 2010.
"All the commodity funds I speak to are still de-leveraging and reducing commodity positions," said Michael Langford, Proprietary Trader at StreamTrading.com.
Investment banks over the course of September have been downgrading their price assumptions for crude oil as recessionary fears mount.
Mike Wittner, Head of Commodities Research at Societe Generale on September
12 cut the bank's 2012 forecast for Brent crude to $100 "from an already cautious $115." Last week Morgan Stanley revised its 2012 Brent crude forecast to $100 a barrel from $130 a barrel prior. Even oil bull Goldman Sachs cut its year-end Brent call to $112.50 from $120.
"What we are seeing now is a capitulation (of sorts) of analysts to the idea of slow or flat global growth for the next year," said Tom Weber, Managing Director at PFGBest. "Add in the fear of Euro-area defaults and investor moods are swinging negative."
UBS commodities analyst Dominic Schnider revised global oil demand forecast lower by 0.4 million barrels a day to 89.9 million. "Our new demand view does not take a recession in the developed world into consideration, which would trigger an additional downward revision. We advise that investors avoid crude oil exposure until WTI dips below $70 and Brent slides towards $83," Schnider and UBS Commodities Strategist Giovani Staunovo wrote in note on October 4.
On balance, it would take a brave soul to stand in the way of the crude oil market, which looks much like the proverbial freight train heading south.
Still, four respondents, or a third of the sample group, forecast prices may rebound this week.
Exhaustion
"Directionally bullish," said Andre Julian, Chief Financial Officer at OpVest, of the crude oil market this week. The reasons? Talk that the Organization of Petroleum Exporting Countries may cut production and continued pressure on Brent supply because of a lack of a precise time frame for Libyan oil getting back on line. Additionally, Japan is still relying on fossil fuels for energy post-Fukushima, he said.
Still, OpVest's Julian does concede that prevailing sentiment "is still all about Europe and all analysis can be thrown out of the window with one whisper that the EFSF won't meet the funding needs to protect Greece."
In other words, "market movement has corresponded to the prospects of the European debt crisis abating or deteriorating more than news directly affecting the crude complex."
From a technical perspective, Peter Turville-Ince, Director of Compass Global Markets in Sydney argues that equities, risk currencies and commodities are all showing signs of exhaustion and bullish divergence on 4 hourly charts and daily charts.
"This is a clear sign that the market is overly short and the bad new is already priced in so there is definitely room for a bounce, if not a trend change," Turville-Ince said. "In the WTI market we still need to see a firm close back above $85 to confirm this move and then if we close above $90/$90.50 we will be poised for a move back to $100 plus. In the Brent market we need an initial close back above $105 and then above $110 to confirm a bullish view."
A wildcard, or a non-event, for oil markets this week could be the September Non-Farm Payrolls. The U.S. jobs report is typically a major market-mover.
But with investors focusing on Europe like a laser, will sub-par jobs number and unemployment at a stubbornly high 9.1 percent really say anything that we don't already know about the U.S. economy?
"Oil really has been tracking the stock market, which is tracking the news out of Europe," said Matt Grossman Chief Equity Market Strategist for the Adam Mesh Trading Group. "If you look at a chart of oil and the S&P 500, you will see how similar they are. That's because oil is trading on the potential of global growth or contraction. If Europe falls by the wayside, oil will drop and drop quickly. If the problems are alleviated we could see a rally. Until an answer out of Europe, oil will be range bound like the stock market is."