Bearish Trend Looming For Oil Prices (BNO, USO, CEO, ERY, ERX, DBO)

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February 2, 2012 11:10pm NYSE:BNO NYSE:ERX

Simon Watkins: Crude oil on NYMEX continues to trade near its lowest level since December 22 as U.S. crude stockpiles increase on slack domestic economic growth, with yesterday’s U.S.

Energy Department report showing that domestic crude supplies rose by 4.2 million barrels last week.

Consensus industry estimates were for only a 2.6 million barrel increase, and the sense that there is too much crude out there for existing demand is compounded by domestic gasoline consumption decreasing to 7.97 million barrels a day, the lowest since September 2001.

In the meantime, Brent crude (NYSEArca:BNO) is still trading at the biggest premium to NYMEX prices  (NYSEArca:USO) in around twelve weeks.

In this regard, more Brent crude is currently being shipped to Asia than at any time in the past eight years, according to industry figures, as the price differential to oil produced from the Middle East has fallen to the lowest levels in 15 months.

The NYMEX futures price curve further out shows a similarly bearish pattern for oil in the coming months, with negativity compounded by the release of estimates by state-owned China National Petroleum Corp. (NYSE:CEO) showing that China’s net crude oil imports may increase in 2012 at the most sluggish pace in at least six years as the world’s second-biggest economy slows.

Some degree of price support continues to come from the mega-muddled negotiations over restructuring Greek debt, with the ECB stating yesterday that it will not enter into restructuring its debt in the failing state until private creditors have finalized their deal.

For their part, private creditors are determined as it stands not to finalize their deal until the ECB agrees the terms of its debt restructuring.

In any event, the ECB appears to be standing by its default negotiating position that it will not take any haircut on its Greek debt holdings, although analysts say that it may be willing not to book profits on these bonds.

Related Tickers: PowerShares DB Oil Fund (NYSEArca:DBO), Direxion Energy Bear 3X Shares ETF (NYSEArca:ERY), Direxion Energy Bull 3X Shares ETF (NYSEArca:ERX).

Written By Simon Watkins From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

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