Oil Transit Points

 The illustration depicts the importance of Strait of Hormuz. With continued tensions in Iran, Oil prices will continue to remain at higher levels

Iran Oil Export

Countries to which Iran exports Oil

Brent WTI spreads

The Brent WTI spreads which widened to the historic highs of $ 26 per barrel seems to making way back. For past one month its making a higher low pattern which suggests that the short term bottom has been made and its on its recovery path. the triangle pattern which is being formed can lead to a break out on one side, the probability is more on the higher side for this spread.so in next few months we can see considerable upside in this spread

Commodities at historic highs

Commodity markets have reach to their historic highs. but will commodity prices would sustain in such low growth environment. Societe general depicts tht commodity prices might show some correction with such level would be difficult to maintain

Oil remains bearish

Crude seems to be a in bearish set up, as both fundamental and technical reason point southward direction.With Libyan issue closing for a conclusion and techincially the much dreaded death cross formation on the chart. the upside tends to be limited. i still dont see Oil prices tumbling down and i have a strong view that oil will make a range and will trade a big range.

Equity and Oil Correlation

As oil remains at higher levels, the correlation of crude oil and equity markets are slowly receding. IN last couple of year, the correlation has moved from negative to positive and now the correlation seems to reducing. Circa 2008, when oil made a high of $ 147 . the corrleation was negative as the highger crude prices were squeezing profit margins of companies and stoking inflation. but in 2009 when world was struggling with recession, oil and equity markets had strong positive correlations as better economic scenario meant more demand for crude.

WTI-Brent Spread Widens.

WTI brent spreads has again widened to record levels. The Brent-WTI price differential held above $22 per barrel on Friday after a dismal non-farm payrolls number and neared its record high of $23.34 set on June 15.

While both benchmarks have historically traded within dollars of each other, the price differential is “here to stay”. Data shows that stocks at Cushing remain 37% above their 5-year average at 37 million barrels. this oil glut has created a pressure on WTI which looks much weaker compared to Brent.
Tension in Libya does not seem to end anytime soon.with ramadan approaching Nato will have to stop the attack on Gaddafi forces, which elonagates the civil war for one more month. Nato also attacked Libya's Oil installation to starve gaddafis without oil. All these factors are creating upward pressure on Brent.

At the same time, rising hostilities between oil producer’s cartel OPEC and IEA, the west’s oil watchdog, have made the market nervous

these factors will create will not let WTI Brent spreads to recover anytime soon

Oil and Economy - Different scenarios

Standard Charted provides a matrix which envisages effect of oil on economy and different assets in all the scenarios possible

Source Standard Charrted, pragcap.com

Crude Oil Speculation

The non commercials net positions have crossed pre crisis levels. This might suggest that the speculation in the markets have reached a record high and even the slightest of bad news can bring the market sharply

Oil and Demand Destruction

The ratio of Oil prices to World GDP has reached to a record level. Its a classic case of demand destruction where these high prices would end up hurting economies and killing the price surge. Moreover High prices would also make the oil producing countries to produce extra and glut would again destroy the prices. But right now its difficult to guess when and how...

Source : FT

Crude Oil overbought

it seems revolution has a cost and this time its $ 120 / barrel. But will we sustain this massive rally in oil prices. technically, if WTI remains above $ 93 , the rally is here to stay but we r still not sure of when and how much. Another view is from Bespoke investment who comes comes out with a very interesting piece of data which suggests that oil seems overbought and it might spike further right now.

"the price of oil closed more than three standard deviations above its 50-day moving average on Wednesday. This is a feat that hasn't been accomplished in more than ten years, and going back to 1983, it has only occurred in eight other periods. In the table below, we highlight the first day in each period where this occurred as well as the commodity's performance over the next week and month. In more than half of the prior periods, crude continued to rise, averaging gains of 1.07% over the next week and 4.03% over the next month"

Source - BespokeInvestement

Oil at $ 200 - Nomura

So economists have started crystal ball gazing and predicting. last time it was Goldman Sachs who made a self fulfilling prophecy and this time around its Nomura.

" If the situation in the region were to worsen in a way that it encompasses other oil producing countries as well in the future, the oil supply-demand balance could change very rapidly. In particular, if the crisis were to spread to Saudi Arabia, (possibility of which is quite low at present according to our Senior Political Analyst Alastair Newton), there can be real threat to global oil production, the impact of which is impossible to ascertain on prices. In addition, the recovery in Middle East oil production would depend upon the extent of damage to oil infrastructure during the crisis and the extent of restoration of stability. Overall, we do not rule out the possibility of oil prices touching record highs in excess of US$200/bbl in the near term, should the MENA crisis continue to spread over the coming weeks " .

read the full report

Nomura MENA

Eqypt and oil price

The crisis in egypt is making oil shooting through the roof. The vents in Egypt will not only decide the fate of the nation but also the middle east which is the main supplier of the oil

WSJ 's take

The turmoil in Egypt is reverberating around the world, battering stock markets, driving up oil prices and raising questions about whether the rising cost of crude could slow the global economy.

The Egyptian stock market is expected to be closed Monday, after shares fell 17% late last week. Most Persian Gulf markets fell Sunday, with Dubai tumbling 4.3% and Oman 3%. The Saudi Arabian stock market ended up 2.5% after sliding 6% on Saturday. Prices for U.S. benchmark crude futures leapt $3.70, or more than 4%, to $89.34 a barrel on Friday. In Asian trading early Monday, U.S. oil futures were trading up 87 cents, or 1%, at $90.21 a barrel.

J.P. Morgan economists estimate that a 10% increase in oil prices, if sustained, would slow global GDP growth by a quarter-percentage point. They expect global output to rise at a 3.6% annual rate this quarter.

"The principal concern is that civil unrest spreads to Middle Eastern and North African oil producers, producing significant reverberations in financial asset prices and confidence," J.P. Morgan said in a research note.

For the U.S., the surge in oil prices comes just as the economy appears to be growing at a pace, which, if sustained, could bring down unemployment in the months ahead. Several European economies are growing more slowly or even contracting due to the continuing effects of the financial crisis.

About a million barrels a day of crude and refined products are shipped northward on the Suez Canal, according to the U.S. Department of Energy. A separate pipeline across Egypt carries 1.1 million barrels a day between the Red Sea and the Mediterranean. Together, that is roughly 2% of global oil production.

Closing the Suez Canal would force ships to seek other routes, adding about 10 days to the time it takes for Mideast oil to reach the U.S. and 18 days for the trip to Northern Europe. That alone would push up crude prices even if supplies were adequate due to emergency reserves around the world.

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http://online.wsj.com/article/SB10001424052748704832704576113822189671908.html?mod=googlenews_wsj