Petroleum Market Updates

February 28, 2008

GETTING DOWN TO BRASS FACTS

Oil power to a new record above $102.00 a barrel on Tuesday. On Wednesday bearish inventory report notwithstanding, this morning's price action suggests how difficult it will be in disabusing the bullish bias in the market. Militant activity reported to have disrupted 50k to 80k of output at ENI's Brass River facility in Nigeria was apparently enough to put prices up over $100 again, after falling in overnight trading. ENI has since announced that Brass River loadings were unaffected. The Commerce Department reported that GDP grew 2.2% percent for all of last year, which is the slowest since 2002. Federal Reserve Chairman Bernanke warned on Wednesday that the economy remained at risk, but he also cautioned that inflation had risen and was being watched closely. A week dollar can sometimes trigger commodities buying as investors seek to preserve their normal value in other currencies. A technical correction in crude oil could be limited by the dollar's entrenched downtrend attracting speculative buyers to enter the crude oil market. Another factor that could limit a break in crude oil and possibly send the market to fresh highs is the idea that Saudi Arabia and/or Iran may unofficially cut back on supplies to keep oil prices firm in the face of a lingering global slowing threat. OPEC appears to reluctant to heed requests from Western leaders to add more barrels to the market in order to soften prices and appears to be heading for an unchanged scenario when it meets next Wednesday. So far, the market has not broken out, but rather has been trading in a large consolidation pattern between 86.00 and 102.00. The longer it takes to actually break out above resistance at around 105.00, the heavier the market will look as holders of length grow increasingly impatient. For the moment though, participant’s first reaction is to buy.

Sources: Reuters (Reuters Trader for Commodities)
Energy Risk Management Group (Fitzpatrick, Mike)