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Daily Oil Price Analysis & DOE Forecast 3 Feb 2010

Crude Oil Chart 2 Feb 2010

Crude oil prices have managed to stage a dramatic reversal in the past two days on the back of a weaker dollar and better than expected US ISM data which came in at 58.4 against a forecast of 55.5 with yesterday’s widespread up candle confirming Monday’s bullish engulfing signal in dramatic fashion.  Yesterday’s candle was also significant in the fact that it breached and closed above all three moving averages which confirmed the return of some short term bullish momentum for crude oil prices.  This bullish sentiment has continued in early oil trading this morning and the key in the medium term will be whether the rally has sufficient power to breach the strong and deep resistance now potentially in place between $76.50 and $81.00 per barrel price points.  A break above this upper level should confirm the move but potentially we could see this stall as the market runs out of steam at these key levels.  On the daily oil chart watch for any signs of weakness such as shooting star, doji or bearing engulfing candles.

From a fundamental perspective today’s DOE numbers are expected to show both crude oil and gasoline stocks rising.  According to the mean of 8 analysts’ forecasts crude oil is expected to rise by 400k barrels.  Five analysts are predicting a gain, two a draw and one no change with the forecasts ranging from a decline of 2.3m barrels to an increase of 4m barrels.  However, other analysts are not expecting a big build in crude stocks as imports into the US Gulf were delayed following an oil spill in the Sabine-Neches Waterway in Texcas.  This limited vessel traffic along the waterway for most of last week.  Around 11k barrels of crude oil was spilled after a barge pierced a hole in a double hull Aframax tanker.  The closure of the waterway also reduced refining at Motiva’s Port Arthur refinery.

Gasoline stocks too are expected to rise by 1m barrels, with seven analysts predicting an increase and one a decline.  The forecast ranges from a fall of 1.5m barrels to a build of 2m barrels. Stocks of distillates (which include diesel and heating oil) are seen as falling by 700k barrels with six analysts expecting a draw and two a build.  Forecasts here range from a decline of 2m barrels to a gain of 2m barrels.

Refining capacity is expected to increase by 0.1% to 78.6% of capacity.

Meanwhile the API (American Petroleum Institute figures) released yesterday confirmed a build of 4.7m barrels of crude which was unexpected as analysts had been predicting that US inventories would only rise by an average of 400 to 500k barrels.  The API report is often a precursor to the DOE weekly inventories and which provide a snapshot of global energy demand by showing the size of the crude stockpiles in the world’s largest energy consumer.   The API temporarily spooked the oil market as up to the point of the daily oil prices had been rallying on positive market sentiment which had seen equities rebounding on the back of the US manufacturing data.  Although at one point during the oil trading session the WTI contract was down by 42 cents to $76.81 a barrel and the Brent contract down by 31 cents to $75.75, daily oil prices still managed to close out strongly with the WTI contract finishing at $77.00 per barrel & Brent closing at $75.89 per barrel.

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