Commodities | Jul 04 2013
As we mentioned at the beginning of the Bulletin, oil prices have taken out significant levels of resistance on the back of concerns in Egypt. We still feel that the world is awash with the commodity with the fundamental picture remaining negative. Even if we take into consideration the developments in Egypt we feel that the recent premium is simply not warranted. Although Egypt has significant reserves of oil, production is negligible. The only issues, we feel, are that the unrest could spread to other neighboring OPEC producers and further could restrict about 4 million barrels a day of production that flow through the Suez Canal. This remains a chance however one that is conjectural for the region given the recent rhetoric from OPEC, developments in Iran and resolutions being tabled for Syria.
It looks like the market is getting jittery as the army deadline for Morsi to solve the insurrection looms [Morsi ousted subsequent to writing – Ed]. This potentially could see Egypt back into a civil war, which would be alarming for the region. However as the Military are involved and backing the people, if the current PM doesn’t have their support then we suggest this issue will resolve it self sooner rather than later. Egypt will be left with a military government until new elections. This is the desired outcome which we feel all Egyptians want. Only time will tell but whilst this occurs the oil market is factoring in a premium, which we feel is simply not warranted.
Current fundamentals still suggest that the world is awash with oil and whilst economic issues continue to track sideways the consumption of the commodity is not on the increase rather it remains soft.
As we feel the premium is not warranted and the situation we feel will not develop into a crisis we have decided to take on a short position with a stop at US102.50.
Chart Point – Oil:
We have broken considerable resistance and this in its own right should see the prices higher. Momentum indicators are high and this warrants some caution. In order for a bearish scenario to develop we need to see a break below US99.30, as this would suggest a top of some importance is in play. We are sort with stop at US102.50.
West Texas Intermediate
.jpg)
This report is not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, products, securities or investments. This report does not, and should not be construed as acting to, sponsor, advocate, endorse or promote products or any other products, securities or investments. This report does not purport to make any recommendations or provide any investment or other advice with respect to the purchase, sale or other disposition of products, securities or investments, including, without limitation, any advice to the effect that any related transaction is appropriate for any investment objective or financial situation of a prospective investor. A decision to invest in securities or investments should not be made in reliance on any of the statements in this report. Before making any investment decision, prospective investors should seek advice from their financial advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.