The steep rally in Crude oil prices last week has been reversed due to bearish sentiments from weak US economic data. Last week crude oil prices had rallied up on steep decline in US crude oil inventories. Later, crude oil fell from its last week 1.5 year highs, as the global demand concerns further added to the downward pressure on crude prices.

On Thursday last week, the US WTI crude climbed by at least $1.56 to reach a high of $108.04 per barrel, its highest since March 2012. While Brent Crude, the international benchmark for crude prices, edged up by 15cents to hover around $109 per barrel. Further extending its rally on Friday, the WTI crude hit a high of $109.32 per barrel, while, the Brent Crude ticked up to trade at $109.18 per barrel.

The last week rally in crude was supported by a sharp decline in the EIA oil inventories data and some positive economic data from the US and Euro zone. Last Wednesday the EIA reported a sharp decline of around 6.90 million barrels in the US crude oil inventories. Furthermore, the unexpected drop in jobless claims that decreased to 334,000 against a prediction of 345,000 was a positive sign for the US economic growth.

Moreover, Bernanke’s comments on his second day of testimony in Congress revealed that Fed plans to maintain its monetary stimulus for the meantime. This dispelled concerns of an early QE tapering by the Fed. In the Eurozone, Germany too came up with optimistic economic data.  Germany’s Producer Price Index had increased by 0.6% in June from a previous 0.2% increase, in line with the economic forecasts. All of these factors drove up the demand expectation for crude oil and boosted its prices.

However, starting this week on Monday, US crude oil prices pulled back from last week’s 18-month highs. Crude oil prices declined to settle below $107 per barrel, as investors seemed eager to book profit from its steep rally last week. Also, the WTI contract for the August delivery too fell by $1.14 to trade at $106.91 per barrel.

Continuing its decline on Tuesday, US Crude oil slid by 80 cents to trade around $106 per barrel. Meanwhile, the Brent crude too dropped by 20 cents to trade under $108 per barrel. As of today, Crude oil, which initially seemed to pare back its losses by gaining 29 cents, later, fell by 30 cents to trade lower at $106.93 per barrel.  In line with this trend, Brent Crude too dropped by 25 cents to settle down at $108.17 per barrel, by 0317 GMT.

The reversal of the steep rally in Crude oil prices and their gradual slide starting this week can be attributed to disappointing US economic data and concerns of global demand for crude oil. The data released by the US National Association of Realtors reveal that the US housing sales for June fell by 1.2% to an annual rate of 5.08 million. This is well below the expected rise of around 5.25 million from the 5.14 million in May. This gloom made the investors book profit from the previous week rally.

Moreover, the crude prices lacked the upward thrust due to concerns about further growth in global demand for crude oil. The HSBC flash manufacturing PMI in China had deteriorated unexpectedly to 47.7 in July. This was against an expected rise of the PMI index to 48.5 from a previous month PMI of 48.2. This clearly signaled a decline in industrial production of China, the second largest oil consumer. China recording its lowest PMI in the past 11 months, further cast a pall of gloom for Crude oil demand.

However, the latest API reports revealed that the US crude oil inventories fell 1.4 million barrels, indicating at growth in the US demand for Crude. The Chinese central bank that plans to improve economy, through its stimulus measures has removed the restrictions on Bank lending rates. Also, the re-elected Japanese PM has assured to implement more aggressive monetary stimulus policies for a faster economic growth.   

On the other hand, trouble brewed in the MENA region, as the labor protests closed important sea ports for the Libyan oil field. With more clashes erupting in Egypt, the concerns over crude oil supply has increased. These factors will definitely provide a support for the falling crude oil prices. With the US EIA inventory reports due this week, positive macro-economic data might possibly help Crude oil pare back its recent losses. 

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.