How High for Oil?

<p>OPEC lifted its 2013 oil demand growth forecast to 840,000 barrels per day, up 80,000 barrels a day from its previous estimates. Colder weather, broader […]</p>

OPEC lifted its 2013 oil demand growth forecast to 840,000 barrels per day, up 80,000 barrels a day from its previous estimates. Colder weather, broader global economic recovery and strengthening Chinese consumption were cited as reasons for the increased revisions.

One day later, the Paris-based International Energy Agency reduced its forecast for 2013 global crude oil demand citing “weak macroeconomic conditions… despite signs of improvements in China and the US”.

The 840,000 b/d demand forecast for 2013 put forth by OPEC is 90,000 b/d less than the IEA had forecast in January. The IEA attributed the latest rally in brent oil to cuts in Saudi supply, which came off its 30-year peak of 10m b/d last summer to 9.25m b/d last month. Security concerns in North Africa have also been cited as posing significant threat spare capacity, following the terrorist attack in Algeria’s gas field claiming the lives of 37 workers.

Unlike gold, whose rally has been eroded by improved prospects in the Eurozone and falling tail risks, oil continues to gain from speculative demand thriving on the Federal Reserve’s prolonged QE and the aggressive advance in global risk appetite.

The price differential between US Crude oil and Brent due to the supply glut in the continental US and robust global demand for Brent, suggests further upside in US crude. Brent has risen 10% so far this year, breaking above the March 2012 high to hit the highest since August 2008.

US crude is up 8.7% year-to-date, breaking above both the 55 and 100-WMAs for the first time since September, while simultaneously preserving its six-week trendline support. Having broken its 10-month trendline resistance, US crude faces its next upside target at 100.80, followed by 105.00. Such a steep increase implies a steep trendline support, which renders the rally all the more vulnerable to technical pullbacks. We view the 94.80-95.00 as the required support in order for the three-month uptrend to be maintained.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.