Crude oil to bust through on supply concern
This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.
Since the start of the New Year, West Texas Intermediate (WTI) crude oil have been moving with significant bearish sentiment (see chart), mostly on a lot of profit taking going around in the commodity space, and also on concerns over the high inventory and that supplies would exceed demand. The latest jobs report only further fanned the pessimism.
However, there are two new events that could turn the market around quickly before you can say “what happened?”
Shutdown – Canadian Upgrader
Canada is the top region where the United States gets its crude oil and petroleum product imports. This 110,000 bpd capacity is almost 6% of the U.S. daily import volume from Canada.
Shutdown – Alaska Pipeline
The 800-mile pipeline carries about 15% of U.S. oil production. Oil producers reportedly are in the process of cutting 95% of output, which is normally around 630,000 bpd. So far, there’s no estimate as to how long the shutdown will last.
Worse Than Hurrican Ivan
To put it in perspective, this 709,000 bpd volume is more than the disruption caused by Hurricane Ivan. When Ivan hit the U.S. Gulf in 2004, it took down about one third of the oil output in the region, which is around 1.6 million bpd.
OPEC Eyeing $110 a Barrel
This new tightened supply picture, couple with OPEC talks will most likely turn crude oil to move on its own momentum. As such, there will be new money coming into the market, more upward pressure, and lots short covering.
Breaking Above $93 on Supply Concerns
Source: Dian Chu, Economic Forecasts and Opinions, January 10, 2011.
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