Petroleum Complex Outlook - An Excerpt from CRB'S Futures Market Service

Crude oil prices continued their medium-term bullish bias as they broke out above a 5-month range and rallied to a 1-year high of $82.00 a barrel. That 1-year high is a 43% retracement of the 1-1/4 year down move from July 2008’s record high of $147.27 a barrel to December’s 5-1/2 year low of $32.40 a barrel. Bullish factors include (1) the drop in the dollar index to a 14-month low, (2) the larger-than-expected decline in weekly gasoline inventories (-2.21 million bbl versus expectations of -1.5 million bbl), and (3) the prediction from Goldman Sachs that the oil industry faces a worsening capacity crisis as the industry is currently working at 90% to 95% of available capacity which leaves “no buffer to any kind of supply shock” as demand recovers. Bearish factors include (1) comments from OPEC Secretary-General El-Badri that OPEC may decide to increase production at its meeting in Dec depending on prices and the elimination of floating crude storage, (2) slack US gasoline demand after the DOE reported that US gasoline demand fell -3.3% last week to an average of 8.95 million bpd, the biggest one-week drop since May, (3) abundant crude oil supplies as US crude stockpiles are still 9.4% above their 5-year average, and (4) comments from Nigeria's Petroleum Minister that crude oil at $80 a barrel is a "little higher" than fundamentals deserve.

OPEC Summary: OPEC-12 output in Sep fell by –50,000 bpd (-0.2%) to 28.395 mln bpd from 28.445 mln bpd in Aug, remaining below last July’s record of 32.775 mln bpd. OPEC-11 (ex-Iraq) output in Sep fell by –10,000 bpd (-0.1%) to 26.045 mln bpd.

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