Sonntag, 24. März 2013

The Price of Oil

The Price of Oil

Amidst global uncertainties emanating from the Eurozone, the world’s most actively traded commodity has recently seen its fair share of fluctuations. After a volatile trading session at week’s end, the price of oil approached $93 a barrel. This rebound came after a big loss earlier in the week, as the deepening turmoil in Cyprus kept investors on edge. While most analysts expect oil prices to remain in a similar range, the recent momentum of commodity prices has made it difficult to determine with any real certainty what could happen next.

As analysts struggle to ascertain the outlook of crude oil, broader economic forces continue to pull the commodity market in different directions. The threat of a failed Cyprus bailout and its potential exit from the Eurozone has prompted risk aversion across the global market, with many investors turning to safe havens to escape the uncertainty. Cyprus remains on the brink, threatening to send global markets in another tailspin if it can’t secure a US$13 billion EU bailout to help its troubled financial sector. This likely spells trouble for the commodity market and currencies tied to commodity prices. The commodity market as a whole remains under pressure. Precious metals like silver and platinum continue to show weakness relative to gold, a favourite safe haven among torn investors. Despite the recent upswing in the price of crude oil, prices remained lower following the most recent economic data out of the US, which showed signs that the US economy may be recovering. Prices were however supported in the Asia session, due largely to strong Chinese manufacturing data. As the world’s second largest crude oil consumer, China plays a large role in price fluctuations, with growth in manufacturing often signaling heighted demand.
The US is the world’s largest consumer of oil, accounting for 22% of global demand. As US data continue to point to gradual improvements in the economy and Chinese manufacturing continues to grow, price will fluctuate with demand, but not without factoring the political outcomes of the Eurozone.

In trading, Brent crude oil experienced a second week of losses, ticking in at $107.56, while WTI climbed by as much as 1%. Despite this divergence, there is a sense that the price of oil may rise in tandem with the Euro and growing investor confidence in a Cyprus resolution. The outcome of Europe will likely dictate the price point in the near-term.

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