Crude Oil Fundamentals

FXEmpire   |  February 12 2013 1:39 EST

By FXEmpire.com

U.S. crude oil for March delivery settled up $1.31 at $97.03 a barrel, down by 1.37% on Monday but declined on Tuesday morning as traders booked profits. Crude oil is currently trading at 96.88 down by 15cents. WTI crude oil prices were quickly reducing the spread between Brent and WTI crude and as a stronger euro weakened Brent prices. There are no major cues from eurozone, whereas declining CPI of UK may create negative sentiment of the economy. This may keep oil prices under pressure during European session.

A recent EIA report shows that a temporary decrease in capacity on Enbridges and Enterprises Seaway pipeline to about 175,000 bpd, from 400,000 bpd, has locked in more oil at Cushing, and brought on another bout of weakness in the WTI price, leading to a spike in the WTI to Brent differential. Oil in storage at Cushing has reached over 50 million barrels, nearly double the 28 million barrels held there this time last year. Various other U.S. refinery turnarounds in the spring 2013 season may result in painful differentials persisting through the first half, and perhaps well into the second half of the year. However, when BPs Whiting upgrades are finally ready for start-up, and as Marathons upgraded Detroit refinery continues production, these two projects together should materially increase PADD II demand for Canadian heavy crude later in 2013 and in 2014, and begin to ease the WCS to WTI differential.

Light sweet crude oil was also supported on improved demand prospects as signs of recovery from the US and China supported prices. Chinese markets are closed this week for the Lunar holiday, while Japanese markets were closed also on Monday for a regional holiday.

Traders can expect crude oil prices to go up. However the upside will be limited as higher API inventories expected tomorrow will cap the prices. According to the US Energy department, crude oil stocks are likely to increase more than 2000K barrels in the last week inventory report. Also cues from Japan may support oil prices to gain on anticipation of further monetary stimulus in BOJ meet starting from today.

Last week Chinese data which was very strong for crude oil but somehow did not support an increase in prices, as China is closed for the next 10days for the lunar holiday, reducing the demand at present. Geopolitical stress in the Middle East seemed to level out with the possibilities of Vice President Biden taking the lead in negotiations with Iran. OPEC supply and production met quotas and the stronger US dollar weighed on prices.

U.S. natural gas ended higher on Monday as heating demand picked up due to cold weather. As the US remains blanketed by snow residential and business demand continues to increase. Natural gas prices are likely to go up supported by utilities switching from coal to cheaper gas for power generation at current price levels which are considerably low. Front-month gas futures on the New York Mercantile Exchange ended up 0.7 cent at $3.279. Traders can expect gas to continue its upside move on expectation of increasing demand as nuclear output have declined on yesterday.

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Originally posted here