By: Ben Myers
The increased volatility in the Crude Oil markets pushed many investors away from the more risky assets into the more traditional safe havens such as the USD. Last week ended with crude oil futures falling to its lowest level in 3 weeks, trading at $97.70 a barrel, primarily on the back of Standard and Poor’s downgrading of several Eurozone members, including France, who despite being the 2nd largest economy in the troubled Eurozone, lost their triple A credit rating. Austria was also stripped of its triple A rating whilst Italy, Spain, Portugal and Cyprus were downgraded by two notches and Malta, Slovakia and Slovenia down by one notch.
Developments in the Eurozone have taken center stage in the oil market of late, as worries that the sovereign debt crisis will cause a wider economic slowdown that would see demand for oil curbed globally. However, events in Iran and Nigeria dominated oil trading as news came out late on Thursday that a pending EU embargo on Iranian oil imports may well be postponed by 6 months in order that some countries have time to source a different supply.
Crude Oil Outlook- Backwards and Forwards
By close of trade on Friday in the New York Mercantile Exchange, light sweet crude futures for delivery in February fell 2.15% for the week trading at $99.31 a barrel. Meanwhile on the ICE Futures Exchange, Brent oil futures for February delivery steadied at $110.96 a barrel at the end of a volatile trading week. This was a retreat of 2.2% over the course of the week, making the spread between crude contracts and Brent figure at $11.65 a barrel.
This week, much will depend on Iran, which is the worlds 4th largest oil producer and accounted for 5% of all oil output in 2010. Their threats to close the Straits of Hormuz, which handles 33% of all ocean bound oil transportation, will affect the oil price if tensions escalate further than the saber rattling that is going on at present. Investors should also keep an eye on the fuel strikes in Nigeria, Africa’s largest oil producer and responsible for 1.9 million barrels of oil a week.
Looking at the charts, in a week where the NYMEX floor trading will be closed on Monday for the Martin Luther King Jr. holiday, should the price of Crude Oil break the $103.74 mark, it will test the key resistance on $114.83 whilst a sustained break of $114.83 will push the key resistance up to $125.40. A break of the $92.52 support level could see a correction pattern with $74.95 and whilst sentiment appears to be equally split between the Bulls and the Bears at present. Events in Iran, Nigeria and of course the sovereign debt crisis in the Eurozone looks like making it another difficult week ahead for Oil traders.