Why Oil Will Keep Sliding: Armstrong

"War premium" vs. weak demand continue to be competing forces in the oil markets.


The prospect of military conflict over Iran's nuclear program, on one hand, versus a deteriorating global economic outlook, on the other, are divergent factors that nevertheless pushed oil prices to their highest level since May last Thursday.

But as the focus in markets around the world turned to Spain and Italy's regional finances as well as the growing possibility of Greece exiting the euro zone, crude oil turned south.

September ICE Brent crude futures plunged over $4 in a brisk 12 hours of trading early Monday to a session low of $102.42 a barrel after topping $108 last week. September NYMEX WTI oil futures fell to under $88 a barrel after rising to over $93 last Thursday.

"The oil markets are not alone as selling is widespread amongst global equities and commodities, triggered by a renewed lack of confidence in the ability of Greece and Spain to avoid default," says CNBC contributor and energy analyst Addison Armstrong.

The demand outlook will continue to pressure prices for the rest of 2012, said Armstrong, who lowered his 2012 oil price forecast by 10 percent on Monday. He expects prices, which averaged $97.25 a barrel through mid-July, to average only $93 for the year, down from his original view of $103.

"We believe that WTI oil futures face significant headwinds, including falling global demand, robust stockpiles and surging non-OPEC production. With only a very small likelihood that the confrontation with Iran over its nuclear program will grow into a full-scale military conflict that results in a cut-off of tanker-born supplies flowing through the Persian Gulf," said Armstrong, who is senior director of market research at Tradition. "Given the poor fundamentals for oil and a negative outlook for global growth in the second half of the year, we are lowering our forecast to $93.00 per barrel."

-By CNBC's Sharon Epperson
Follow Sharon on Twitter: @sharon_epperson