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

CRUDE OIL

Crude oil prices are attempting to bottom above $70 a barrel following their month-long slide to a 2-3/4 month low.  Bullish factors for crude prices include (1) the acceleration in manufacturing in the US and China, the world's biggest energy-consuming countries, by more than expected last month, (2) heightened risk of damage to the US Gulf of Mexico region as the Atlantic hurricane season enters its most active phase, (3)  the unexpected decline in weekly distillate supplies (739,000 bbl versus expectations of +1.0 million bbl), (4) the increase in US fuel demand by +0.4% to 19.6 million barrels a day in the past 4 weeks ending Aug 27, and (5) the prediction from DnB Nor ASA that crude oil prices will be supported at $70 a barrel for another year as the cost of oil production in deeper water rises and fears of a double-dip recession ease.  Bearish factors include (1)  the larger-than-expected increase in weekly crude oil inventories which left supplies 11% above their 5-year average (+3.42 million bbl to 361.7 million bbl versus expectations of +1.3 million bbl), and (2) the overall increase in petroleum stockpiles, a combination of oil and fuel inventories, by +4.04 million bbl to 1.14 billion bbl, the highest level since at least 1990.

Fundamental Outlook—Near-term bearish towards lower end of range—Crude oil prices remain near the bottom of their month-long slide on ample supplies and fears that demand will slide with the recent weak economic data.  However, oil prices are so far have only moved into the lower half of their 10-month trading range and fundamentals do not currently appear to be bearish enough for crude oil to take out its 13-month low of $64.24.  Further weakness in oil prices could prompt a small production cut by Saudi Arabia to stabilize the market.

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