|News||Crude is losing the battle today and starts to decline|
|Analysis||Crude oil forced to decline at the beginning of the week after it rose last week despite the pessimism that seen in markets after the ISDA said that a credit event occurred after Greece forced private investors to have losses, a move that made Fitch rating agency downgrade Greece’s rating to “restricted default”.|
Crude oil opened today’s session at $107.35 recording a high of $107.36 and a low of $106.51, where it is currently trading around $106.78 a barrel.
However, crude oil neglected these negative factors in Europe that forced the common currency to decline strengthening the U.S. dollar which seen among high levels on Friday, but it didn’t actually affect crude significantly as the commodity was gaining the upside momentum from the good U.S. job’s report.
In general, crude have been supported lately from tensions between Iran and the west which pushed the commodity strongly putting it at these high levels, but tensions eased after the US, EU and allies approved to resume peaceful talking before taking any military action as Israel called for.
But fears didn’t fade completely at the time being, after the decision to resume negotiations, due to the importance of Iranian oil supplies to crude prices which might be doubled if it decline, as for example, UBS warned that crude may top $205 a barrel if Iranian exports cease, where it would reach $270 in case of “complete shutdown”.
Also, Bank of America agrees that prices could “easily” top $200 if Iran decided to block the Strait of Hormuz which constitutes about 20% of the world oil flow, as the oil supplies of Qatar, Kuwait and the United Arab Emirates (UAE) would be “completely” lost, as well as parts of Saudi supply.
That’s why oil prices remained very high despite easing tensions between Iran and the west, but the military intervention is not far away. And we can thank Europe to what it did lately that encouraged investors which been worried for a long period which also supported crude to reach these high levels.
As Greece last week succeeded in its debt swap deal which removed about 100 billion Euros from the country’s huge debt, however, the ISDA considered this deal and the current situation in Greece as a credit event which triggered fears in markets but not too much as this move was expected by investors.
Looking at negative factors that forced crude to decline today, we can say China, the world’s second economy and oil consumer, as it reported the largest trade deficit in two decades in February, adding negativity to the market with the start of a new week, following an earlier cut to growth projections, the thing that signals the wide effect from the debt crisis and the global slowdown their economy, as exports rose less than expected and imports rose more than expected triggering a large trade deficit at $31.5 billion dollars.
Crude today would be volatile amid lack of fundamentals from major economies, where investors will focus today comments from EU leaders about the current situation and developments in the continent, where the commodity is taking the downside wave today but with heavy fluctuations.