Crude oil prices recoup a portion of earlier losses, despite grim global cues

Crude oil prices posted gains on the commodities market, rising from five week low levels in New York, as traders and economists speculated that the sharp declines the fuel exhibited yesterday may have been overdone. The high-profile commodity oil lost more than $5 then on grim reports of increased production levels from OPEC and sky-rocketed borrowing costs in Italy. The almost universal pessimism that overtook the crude oil price charts seems to have dissipated somewhat, though the future of the fuel is still unclear.

West Texas Intermediate crude oil prices for delivery in January rose almost 1%. They fell yesterday at an alarmingly steep angle, approaching their 50-day moving average of $94.24 per barrel. Points of technical resistance and support tend to have clustered orders as a sign. Both WTI and Brent crashed through their underlying foundations when OPEC made the unpopular decision to raise its output thresholds to 30 million barrels per day, effectively commencing massive overproduction in times of floundering demand.

The situation was worsened by continuously troubling news out of Europe, where Italy’s officials reported paying 6.45% on their bonds, a record figure that has not been reached since the introduction of the euro. Many investors and analysts took the soared borrowing costs to mean that a recession in the euro zone would now be simple unavoidable. A recession in Europe would cripple global demand even further, and given the fact that the contagion would almost definitely spread into neighbouring territories and have worldwide implications, OPEC’s raised production quotas seem more inappropriate than ever.

However, the fall of crude oil prices also triggered a round of buying on the charts today, as traders flocked to the fallen commodity in order to make a quick profit once it rebounds. Heavy speculations that the pessimistic outlook for crude was exaggerated flooded the market, spurring traders to buy into the fuel. The $95 per barrel mark for WTI crude represents a highly tempting commodity for investors, as it is both short-covering and holds a strong chance of some fresh long positions.

WTI crude oil prices for delivery in January rose 83 cents to $95.78 per barrel in electronic trading on the New York Mercantile Exchange. Oil investments in the American contract lost 5.2% yesterday, with its futures plunging as low as $94.95 per barrel, the lowest levels since early November. The commodity is up 4.2% for the year overall, compared to the 15% increase it posted in 2010.

On the London-based ICE Futures Exchange, the Brent crude oil price charts remained fairly unchanged, settling at $105.78 per barrel for the day. The January contract’s expiration date is today. The more popular February settlement rose $1 to $105.24 per barrel. The spread between the two benchmarks currently sits at $10.63. It has been circling the $10 mark for the better part of the past few months, and stood at a record high $27.88 per barrel midway through October.

OPEC’s decision to raise its output caps was the first time the group altered its production quotas in almost three years. Representatives from the group stated that by OPEC’s projections, demand for crude should grow well into 2012, warranting a surge in output. However, many have questioned whether a rise in demand, however unexpected would be able to counter the 11% bump in supply that the prolific cartel is planning.

Crude oil prices were also affected by the fact that the decreases in crude oil stockpiles projected for the U.S. were off by roughly half a million barrels, again indicating a lack of demand for the fuel, despite the typical upswings that the autumn and winter months carry.

By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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