Crude Oil Prices: Oil Markets Recover Balance After IMF Recapitalizes (BNO, USO, EWJ, NLR, FXE)
Simon Watkins: Crude oil prices took on a soft tone throughout most of yesterday, with Brent (NYSEARCA:BNO) breaking down through its key $111 support level, but those losses have already been recouped today.
The World Bank dragged sentiment earlier this week by cutting its 2012 global growth forecast to 2.5% from 3.6%, saying that a recession in the euro region threatens to exacerbate a slowdown in some major emerging markets.
The bank added that GDP growth in the euro (NYSEARCA:FXE) area may contract by 0.3% — compared with a previous estimate of a 1.8% increase — while this year’s growth forecast for the United States was cut to 2.2% from 2.9%.
Today, however, the losses have now been recouped, with Brent breaking back up through $111 on news that the IMF is proposing to raise its lending capacity by $500 billion to insulate the global economy against any worsening of Europe’s debt crisis.
Figures showing that U.S. industrial production rebounded in December are also helping support crude. Output at factories, mines and utilities rising 0.4% after a revised 0.3% decline in November.
A further stabilizing of prices came from the National Association of Home Builders/Wells Fargo sentiment gauge, which increased to 25 this month, the highest level since June 2007.
Renewed economic impetus from the United States was underlined by a report from the American Petroleum Institute showing that crude inventory levels had fallen to the lowest level for six weeks in the week ending January 13.
Looking forward, analysts say that continued concerns over Iran’s ongoing threats to blockade the Strait of Hormuz — through which around 20% of the world’s crude oil supplies are usually shipped — should provide solid support for Brent and WTI (NYSEARCA:USO).
These worries came to the fore again this morning, as the Japanese (NYSEARCA:EWJ) stated that they are likely to reduce their purchases of Iranian crude oil in around three months time, in line with U.S.-led initiatives aimed at stalling Tehran’s nuclear program (NYSEARCA:NLR).
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