Commodities | Feb 28 2013
We have seen a break below US95.70 (West Texas Intermediate) from two weeks ago and this has culminated in a move lower for the commodity. It has also consolidated the range of US88.50 to US95.70 and as such we can expect further weakness to prevail. WTI dropped to a seven-week low on the back of concern over the state of the European economy and balance of power shifting to anti-austerity governments, weaker numbers for China and the fact that the US still has concerns over an agreement on the Budget for which aspects are still not finalized. The fact that aspects are not finalized suggests that some spending cuts will come into play at the end of February.
In addition to this, we continue to suspect that builds to US oil inventories are on the cards, which only adds weight to the argument that economies are simply not performing but rather cheap money is keeping them afloat. As it stands, the picture for demand has altered significantly over the last few weeks, and with China being the mainstay for demand we suspect any signs of weakness there will have an effect on prices. Look towards manufacturing data at the end of this week for confirmation of a slowdown.
The only bullish news we can see on the horizon relates to how developments between the G5 and Iran unfold, however given the heavy sanctions we expect Iran to eventually capitulate.
Chart Point – Oil:
We see the range to be US88.00 to US95.50 at the moment. Momentum indicators continue to remain soft and as such we can anticipate the move lower to continue. As suggested in our last note we continue to favour a push lower to support at US88.50.
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