HardAssetsInvestor

Written by Sumit Roy  |

July 05, 2012

Crude Oil Rally Being Fueled By Stimulus And Plunging Iranian Exports; Inventories Fall

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Brent is firmly above $100, as evidence grows that crude has bottomed out.

The Department of Energy reported this morning that in the week ending June 29, U.S. crude oil inventories decreased by 4.3 million barrels, gasoline inventories increased by 0.2 million barrels, distillate inventories decreased by 1.1 million barrels and total petroleum inventories decreased by 4.1 million barrels.

Crude oil was little changed after the latest inventory figures, as prices paused to digest the large gains of the last two weeks. Brent is up almost $12.50, or 14 percent, from the $88.50 low set in June.

BRENT

WTI

Last week, we suggested that prices may have bottomed after falling 40 percent peak-to-trough. That continues to be our view, though a bit of profit-taking would not be surprising given the recent move higher.

While demand-concerns remain a weight on prices, authorities around the world are stimulating economic growth, which should boost consumption in the medium term.

Today China cut its interest rates for the second time in as many months, while the European Central Bank slashed its benchmark rate to a record low. In the U.S., the Fed extended Operation Twist last month and may unveil a third round of quantitative easing (QE3) at its next meeting in August.

Meanwhile, on the supply side, Iranian exports may fall to half of their normal levels this month, according to sources. The country is likely to ship 1.1 mmbbl/d of crude in July, down from the 2.2 mmbbl/d average of last year.

In Norway, a strike by oil workers may shut 1.2 mmbbl/d of production or more if allowed to continue. Analysts say the government could intervene to prevent a full shutdown, thus a lasting disruption is unlikely.