Five reasons for oil price to ease

Oil prices have remained high since the beginning of the year, stuttering the global economic recovery. With tensions over Tehrans nuclear programme taking away the limelight from the sovereign debt crisis, the world oil market is tipped into the risks of supply disruption. With sanctions against Iran waiting in the wings towards the mid of the year and heightening uncertainty regarding Saudi Arabia propping up its production to fill the shortfall, the next few months will surely see high crude prices. However, amidst the actual as well as highly perceived supply disruptions, five reasons signal a global correction in prices towards the year-end, and prices should soften given the military action between Iran and US is kept at bay. First, with summers approaching in many countries, the demand for fuel tends to go down. The second half of the year is conventionally softer for prices as refineries cut production for scheduled maintenance. IEA in its latest Oil Market Report has revised down the global refinery crude runs for 1QCY12 by 90,000 b/d owing to the seasonal maintenance. Secondly, sustained high crude prices can destruct demand from major economies as they shift their investments into alternate energy sources. With Chinese economy slowing down and the demand from OECD countries also expected to drop, stocks pile up alleviating the supply woes. Thirdly, going forward the release of US strategic reserves and accumulation of ample inventories are likely to ease the supply tension to some extent brought in by Iran oil embargo. As recently as few weeks, the US inventories have soared and a spike in crude inventories in the US usually indicates wavering demand in the worlds largest economy and oil consumer. Another sign that points towards the easing of prices in the latter half of the year is the recent take by Iran to solve the ongoing issue. The country has agreed to talk with European Union and other major economies like US, China and Russia regarding the geopolitical pressure. In case of fruitful discussions, oil prices could significantly slide to a more realistic level. And finally, the daily spot price trend between Brent crude oil and WTI also suggests so. WTI spot prices have started on their moderate sliding journey. Taking a signal from falling WTI, the Brent grade may also head for a correction in the coming weeks or months. Meanwhile, amid all such signs, the terror of a worsening situation still lingers, be it a military confrontation between Iran and US or eurozone crisis igniting once again.