Interesting times await the eurozone and it would be even more interesting to see how its fate affects global oil prices. Germany is bracing itself to vote on the European bailout fund in which it is expected to pool in the lions share of over €200 billion.
The German Lower House has already voted in favour of the bailout stability fund and the world awaits the Upper House to pass the same - and observers believe the Upper House will follow suit.
The global oil market, which has faced severe pressure of late over the eurozone financial crisis, is anticipating significant upside movement should the bailout package get approved.
The anticipation has already spurred movement in the oil stocks which have resurged to $82/bbl after having fallen to $79/bbl at the start of this week. "Obviously the extension of the European Financial Stability Facility would have an impact on growth in Europe, and then other countries, and thats why the market is reacting so strongly," said an energy analyst working for the London-based Credit Agricole.
While there is no denying the significance of this impending development, it would be overly optimistic to assume that the Europe Financial Stability Facility alone would help oil prices tick over $90/bbl. "Fundamentals remain very weak and the economic growth is worse than expected", reads a recent note on oil price scenario, by UBS.
Apart from the eurozone troubles, the fundamentals of the American economy have shown little or no signs of improvement. The gasoline demand in the US has fallen by over 3 percent year-on-year, in September according to the US Energy Department, which casts shadows over the strength of oil demand in the days to come, while the overall economic situation remains far from satisfactory. The crude supplies, on the other hand, have grown steadily in the past couple of months and unrest is believed to be easing in the MENA region, building hopes for improved supplies from there. Inventory levels are expected to remain at a satisfactory level as non-Opec production has steadily improved, of late. The leading agencies such as the EIA and IEA have already downgraded their projections for oil demand and oil price, as the world economy is now predicted to grow at a much slower pace than was expected at the start of the year. Morgan Stanley, in its recent technical advice, has massively cut the oil price futures from $130/bbl to $100/bbl for 2012. For now, all eyes are on the German move and there might be a short burst in the oil prices, but will likely not be enough to take it closer to $100/bbl, anytime soon. Apparently, the global economic growth just isn strong enough to support oil prices beyond $90/bbl.
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