HardAssetsInvestor

Written by Sumit Roy  |

May 31, 2012

Brent Finally Nears $100 As US Crude Inventories Hit 22-Year High, More Room For Prices To Fall

Details

Crude oil prices continue to slump amid broad-based risk aversion in financial markets.

The Department of Energy reported this morning that in the week ending May 25, U.S. crude oil inventories increased by 2.2 million barrels, gasoline inventories decreased by 0.8 million barrels, distillate inventories decreased by 1.7 million barrels and total petroleum inventories increased by 5.5 million barrels.

Crude oil prices continued to free-fall over the past week amid mounting debt concerns in Greece and Spain as well as economic-slowdown worries in the U.S. and China.

Geopolitical fears have fallen by the wayside for now; even with only one month remaining before the European Union’s sanctions on Iranian oil goes into full effect on July 1.

Decreasing output and exports from Iran have been offset by large increases in production from other OPEC members (Saudi Arabia, Libya, Iraq) and the United States.

In our view, Brent has priced in this comfortable supply backdrop with the decline from $127 to $102. Price movements from here will largely be determined by the outlook for demand.

News flow with regard to the eurozone, the U.S. and China will be of particular importance in the short term.

From a technical perspective, Brent prices have reached our initial objective of $98 to $102. If risk appetite in financial markets continues to retreat, prices could fall further, thus cautious is warranted.

BRENT

WTI