Europe

The ongoing drama that is the Euro zone, has affected the crude oil market by calling into question the further demand and use of crude in the European economy. 

The issues that the Euro zone is experiencing are leading to reduced manufacturing, and overall uncertainty for that economic sector.  This uncertainty, coupled with an economic slowdown, decreases expectations for future demand of Crude and Crude products.  It makes sense that if the Europeans had a booming economy they would consume more of the black gold, and prices would be higher than current levels.


Is Europe The Only Cause?

Another effect on Crude prices - one that goes beyond simple supply and demand - is that NYMEX Crude is priced in US Dollars. 

Due to the risks and uncertainties facing the Greek, Italian and Spanish economies, the US Dollar (along with US Bonds) is becoming a safe-haven for investors wishing to avoid investments and cash in the Euro. 

At least for now, the greenback is strengthening against the Euro.  The stronger Dollar means goods priced in the Dollars (like Crude) tend to be cheaper.


Supply and Demand

Wednesday morning the EIA (Energy Information Administration) came out with its weekly inventory report.

Analysts had been expecting a build in the stocks of Crude Oil around 1.5 million barrels. As Crude stocks are already at record levels, this would have been seen as bearish information in and of itself.  However, the report indicated the build in Crude inventories was 2.1 million barrels. 

This increase over expectations certainly put pressure on the Crude Oil contract.  With the record levels of crude in storage, and the seemingly reduced demand due to uncertainty in the Euro zone and the U.S., there is really no fundamental reason that Crude Oil should be rallying.  


On The Charts

Crude Oil finished the floor trading session at 92.85 for the June delivery contract.  From a technical perspective, Crude violated and closed below a 50% support retracement line (figured from the October '11 low of 78.63 and the March '12 high of 111.30).  There does seem to be some support on the chart in the 91.00 - 90.00 area.


"Speculators" Pushing Prices Down?

It is important to remember that very few markets move in straight lines.  The Crude Oil may indeed be headed lower, considering that there seems to be little fundamental news to hold prices up.  But if prices hold the $90.00 area, we may be setting up for a short-term correction. 

However those darned speculators are clearly pushing the price lower.  I wonder if they will get credit for a sell-off of over $18 per barrel in the space of two months, or will someone else take the credit?  Stay Tuned.