On Sep 21st 2011 the Fed Reserve warned of significant risks to the U.S. economy, global oil prices and the world’s major stock indices (Dow Jones, Nasdaq, DAX, Nikkei 225, CAC 40, S&P 500) started a rapid downfall. The downfall has many signs of another major crisis.
The gloomy forecasts made by George Soros, Nouriel Roubini and about the forthcoming 2nd wave of the global crisis seem to be coming true. For more details read July’s article “A. Lukashenko confirms Masterforex-V’s forecast. Will the world see the next wave of the global crisis?”
What awaits the world in the near future? How deep will oil prices decline? Is there anything that could stop the decline?
Are oil prices ready for a deeper decline?
According to the experts of the Department of Masterforex-V trading system , , the Light Sweet Crude Oil Futures continues its mid- and long-term trends. So far there have been no major purchases of crude oil futures. That is why they are expected to keep losing value. The MF pivot 67,15 is currently the closest major level of support. According to the new tech analysis by Masterforex-V, this level will determine the near-term prospects of oil prices. If the price fails to break and consolidate below the level, it may rebound and recover. Otherwise the chance of getting further down will be high.
In order to reverse the downtrend, the price will have to consolidate above the MF pivot 100,62. In this case it will get a chance to reach April’s high at 114,83 (as shown below):
Why is crude oil currently losing its value?
According to the analytic team of , the current decline is mainly caused by massive sell-offs around the world. Most investors are risk-averse, i.e. unwilling to by the declining asset, especially after the media reported that Warren Buffet (one of the few investors who keep buying declining assets – bonds, stocks and futures) had lost $6B.More and more investors started withdrawing their funds form risky assets and looking for safe haven assets right after the Fed Reserve gave then to understand that there wouldn’t be any QE3.
Instead of QE3 the Fed Reserve is going to sell $400 billion of short-term Treasury bonds to buy the same amount of longer-term US bonds in order to stimulate the US economic growth, which has turned into a crawl.
These are the following factors that are currently pressing crude oil prices:
· The Fed Reserve’s activities, which failed to stimulate the US economy.
· Ben Bernanke’s warning about significant risks to the weak US economy.
· Doubts about the US government’s policies that are considered insufficient for accelerating the growth.
· A slowdown in China’s economy, which is the leading emerging economy in terms of crude oil consumption.
· The EU’s economic weakness and debt problems.
· The strengthening of the US dollar, which has already hit the 7-month high as investors keep turning risk-averse.
· Market concerns (most investors are unwilling to by risky assets).
What can support the market of crude oil?
The current macroeconomic situation cannot be ignored. In general, it can be said that crude oil follows stock markets. That is why the development of the global economy is essential for the market of crude oil. However, its role shouldn’t be overestimated as it is often of speculative nature, making oil prices more volatile.
According to the analytic team of ICM Brokers, in near-term perspective the following factors will be supporting crude oil prices:
· The reduction of crude oil inventories. According to the EIA’s report there was a7.3M decline down to 339M barrels. In other words, the volume consumed by the refineries exceeded the supplies.
· The overall shortage of energy carriers. In longer-term perspective, the deficit of energy carriers will only become more intense. In the coming years the global economy will feel the impact of more volatile prices on oil and natural gas. Oil as the key energy carrier will obviously become more expensive.
· The expansion of oil production. The changes will create conditions for expanding the production of crude oil and natural gas in the Arctic. However, now the investments in the development of new oil deposits are insufficient as most oil companies have suffered from the global crisis. Moreover, the new deposits will be costly, thus affecting oil prices.
· The EU economy. If the EU manages to stabilize and support the common European currency, oil prices will stabilize as well. If the pace of the EU’s economic recovery accelerates, crude oil will gain value. If the common currency keeps getting cheaper, it will initiate the 1st wave of an oil market downtrend. In this case the second wave will be started in e similar problems.
Emerging economies. They are going to be providing the major support for oil prices in 2012. Especially it is true of China. If there are some difficulties in the region’s economic development, crude oil prices may even fall below $70/b. However, the decline will be temporary and in mid/long-term perspective the prices will recover.
Taking into account all the mentioned factors, we can conclude that in mid-term perspective (in early 2012) the price of a barrel of oil may decline from $110 down to $98. In 2013 it may recover because both the emerging and developed markets will increase their demand for oil.
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Will the world be hit by another major crisis in late 2011?
