|News||Crude inclines amid hopes from Europe|
|Analysis||Crude oil enjoyed the upside rally as it extended its gains for the fifth consecutive day reaching high levels not expected due to optimism from Europe that EU leaders would finally come up with a comprehensive plan for the Euro Area to contain its crisis in today’s summit.|
Investors are so optimistic ahead of the summit today which will likely present a decisive plan that would care about prevent crisis from spreading to other huge European nations such as Italy and Spain by lowering the borrowing costs for these countries along with pulling up Greece from default.
Also, it is expected that leaders would find a way to recapitalize European banks in order to prevent a credit crunch by providing more liquidity into markets using some tools that they would announce in today’s summit, where they indicated in the first summit that EU banks need more than 100 billion Euros.
Crude oil for December delivery continued yesterday’s rally after it opened the session at $92.47 and reached so far a high of $93.89 and recorded a low of $92.30, where it is currently trading positively around $93.50.
Vagueness is still dominant on how would they agree to extend the firepower of the EFSF after they ruled out the ECB’s role as a main refinancer for the fund following German calls, where investors are wondering now whether the EFSF will buy debt-laden nations bonds in order to lower borrowing costs or they will insure these new bond issues.
As the main focus for investors is on Europe and the latest developments ahead of the summit, Germany called yesterday to remove the call in the deal on the ECB to continue the temporary non-standard measures which allow for the bank to buy governments’ bonds in the secondary market,.
On the other hand, investors are worried about how EU leaders will decide about the Greek debt haircuts, as expectations that they will writedown almost 50%-60% of Greek bonds value which considered a big cut for private sector’s money, where a hard talk is expected to take a place in the summit over this issue.
Nonetheless, crude is benefiting from all these hopes that clear the outlook for Europe and make it better, as the expected plan would support the European economy and ease fears over the deepening debt crisis, and as a result improve the global pace of growth, which will increase the demand on crude significantly.
All these questions are dominate investors’ thinking ahead of the summit which will keep markets volatile but with a good positive momentum amid hopes that leaders will absolutely present a decisive and comprehensive plan for the crisis, and if not, we will see a huge selloff among global markets that would drive markets sharply down and specially oil which is considered a very growth sensitive commodity.
But today, EIA report will be released which will take some of the investors’ attention ahead of the summit, and it is expected to weigh down crude oil, as it is expected to show a rise in U.S. crude inventories by 1.4 million barrel in the last week, after it recorded an unexpected drop by 4.7 million barrel a week before.