Factbox: Bullish and bearish factors behind oil price

(BestGrowthStock) – Oil prices hit a near two-month high above $83 a barrel this week, breaking out of the $70-$80 range which has held for most of the last five months. U.S. crude has recovered more than 150 percent from a low of $32.40 reached in December 2008 but remains almost half the record high of nearly $147.27 hit in July that year. The following lists the main bearish and bullish factors in the oil markets.

SLOW RECOVERY IN DEMAND

Major forecasters, including the Organization of the Petroleum Exporting Countries (OPEC), the International Energy Agency (IEA) and the U.S. government’s Energy Information Administration, expect fuel demand to increase this year.

The growth will be sluggish, however, compared with the deep contraction in fuel use triggered by the financial crisis.

OPEC

The producer-group is expected to leave oil output targets unchanged when it meets in Vienna next week as a price around $80 and hope that a rebounding world economy will burn more fuel override concern about oversupply.

Faced with rising stocks and weak demand, OPEC late last year said it had agreed to reduce supply by 4.2 million barrels per day compared with last September’s output.

At its most disciplined earlier this year, OPEC compliance was around 80 percent of agreed cuts.

It has since slipped to around 53 percent, according to analyst estimates but although production has risen informally, there has been no official change to output targets, marking one of the longest periods of steady OPEC production policy.

INVENTORIES Weak demand has generated huge stockpiles, which translate into a contango structure on the oil market, meaning crude for early delivery is cheaper than that for a later date.

However, the contango has flattened significantly in the last month, helping to reduce the amount of crude and oil products stored on floating vessels at sea.

Broker SSY said the volume of clean products held at sea fell to 66.96 million barrels at the end of February from 72.68 million barrels at the end of January.

Volumes stored on tankers peaked over 100 million barrels in December last year, the bulk of it gas oil floating off Europe.

U.S. crude oil inventories logged their sixth straight rise last week on lower refinery runs but higher demand and reduced production saw gasoline stocks fall unexpectedly.

SPECULATIVE TRADING

The rebound in oil prices since 2008’s collapse outperformed most expectations as a prolonged recession kept demand subdued.

Vast amounts of liquidity provided by central banks, responding to government stimulus plans, have triggered a rally across a wave of asset classes, including oil.

Some analysts believe much of oil’s rally has been driven by speculative traders, arguing that lackluster demand and rising supplies do not warrant a price above $80.

As the government stimulus is removed, some analysts see a risk to the downside for oil prices.

REGULATION

The run-up to record oil prices in 2008 and the financial crisis led to renewed calls for tighter regulation.

U.S. regulator the Commodity Futures Trading Commission (CFTC) unveiled proposed regulations in January on how many energy contracts hedge funds, investment banks and other speculators can control.

The proposal is up for public comment until April 26.

Some analysts have said this could have a bearish impact on oil markets.

CHINA

The demand surge associated with the record price rally was led by an economic boom in China, which, according to IEA data, in 2003 overtook Japan to become the world’s second biggest fuel consumer after the United States.

While most of the world sank into recession, Chinese growth has stayed positive. Together with India, it is expected to continue to spur fuel demand, but analysts said that could be instead of rather than in addition to new demand in the developed world, where fuel consumption is expected to stagnate.

Any price surges driven by rising Asian fuel use, could in the context of a still ailing world economy, limit a rise in fuel consumption, especially in the United States, where gasoline consumers are regarded as especially price sensitive.

The IEA has predicted China would overtake the United States as the biggest energy consumer around 2025.

Stock Investing

(Reporting by Joe Brock; editing by Sue Thomas)

Factbox: Bullish and bearish factors behind oil price