Simon Watkins: Brent crude (NYSEARCA:BNO) continues to hold below its key $125 per barrel resistance level on speculation that a report tomorrow is likely to show that U.S. fuel stockpiles rose to their highest level in six months last week.
Additional downward pressure has come from news that Saudi Arabia’s cabinet is working with crude consumers and producers to restore “fair” prices, according to the kingdom’s state news agency.
These market catalysts have counterbalanced entrenched fears that European Union and U.S. sanctions against Iran’s nuclear program will disrupt crude oil exports from the Middle East.
With an estimated $20 war risk premium now built into every barrel of oil currently traded, the Saudis’ efforts to rationalize prices could flush speculators out of the market.
The world’s largest supplier of crude oil, Saudi Arabia also assuaged fears of a supply disruption with news that it boosted its output in January to the second-highest level since at least 1980, according to the Joint Organization Data Initiative.
In the absence of an escalation of tensions between the West and Iran, which has frequently threatened to close the Strait of Hormuz — through which about 20% of the world’s crude oil is shipped — analysts estimate that New York crude prices (NYSEARCA:USO) would find a natural trading level of around $80 per barrel.
If 65% of the price of U.S. gasoline (NYSEARCA:UGA) is bound up in petroleum costs, pushing the 20% speculation premium out of the oil market could translate into roughly a 15% discount in what it costs for Americans to fill their tanks.
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