Oil prices in the international market briefly crossed the $80/bbl mark yet again in the opening week of March 2010, only to face a strong resistance. Besides other macroeconomic fundamentals, the strength that the US dollar gained made the commodity more expensive, pushing it back to where it belongs for the near term.
Although, the non-Opec oil supply is expected to fall by 120,000 bpd, but this would more than offset by the increase of 1 million bpd of supply from Opec, as global demand continues to recover slowly.
Though, Opecs meeting on March 17 would give a better idea as to what the oil producers are thinking, independent analysts foresee a massive increase of 2.2 million bpd in the next two years. And, that should keep the oil bulls in check.
On the consumption front, the Energy Information administration (EIA) has upgraded its previous forecast on global oil supply and consumption, citing that the Asian led recovery is expected to pick up the pace amid the continuation of stimulus packages.
So far, China has led the oil consumption recovery after its oil demand witnessed a 12 percent jump in the first two months of 2010, increasing by 0.9 million bpd. The Asian giants stimulus-led real sector recovery has spurred both the usage of oil as well as the economic growth.
While, the other major oil consumer in the region, Japan, has been on the slower side but visible signs of economic turnaround in the country have also contributed to an optimistic scenario of growth in the consumption of the worlds most loved engine driver.
But apart from the Asian bloc, U.S demand has remained particularly weak, which has opened up the debate for a possible oil-less recovery in North America.
Moreover, the demand from the OECD countries, which had fallen drastically during the peak recession period, has not fully recovered from the slump. Even the mighty cold spells of weather have failed to spur the heating oil demand as more and more people now opt for energy conservation and fuel substitution.
Another factor that has kept oil prices in a broad band of $70-85/bbl is that of the commercial inventory.
The OECDs commercial inventory level at the beginning of 2010 was 90 million barrels more than the 5-year historical average. And, there is a strong possibility that the projected inventory levels will remain at the upper end of the historical range - a hint of which could be taken from a sizeable increase in the US stockpile last week that kept oil prices in check.
Having discussed the fundamentals, a look at what the technical analysis reveal won go amiss. The trend line shows a very slight bullish signal which could stretch the oil price to $90/bbl, should the US dollar lose its grip in the currency market.
On the contrary, a more likely case, if the situation reverses, resulting in a stronger greenback or if a sizeable increase in oil production is announced by the Opec in its soon-to-be-held meeting, oil could dip down to its 100-day moving average of $76/bbl. Conversely, if the status quo remains, there are little chances of oil breaching the very strong resistance level of $80~82/bbl.
So, for the short term, all what the oil investors need to do is to keep an eye on the Opec meeting and the performance of US dollar, because nothing else has sufficient power to make the oil price breach the mark where it currently is - unless, of course, tensions in the middle-east turn extremely worrisome in the months ahead.
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