Crude markets are finally holding easy, experiencing first weekly loss in five weeks – since mid-January to be exact. After flirting with $120 for weeks, Brent fell below $118 mark Friday. For some time now, pundits have been insisting that with demand from the world's second-largest economy appearing to strength, crude markets have been attempting to touch and test market limits. Data last week confirmed that China imported crude at the third-highest rate on record in January - providing some rationale behind the crude rally. Futures contracts for Brent crude have strengthened 7 percent in 2013 to within sight of $125 – a level that tends to be seen as dangerously high by politicians and businesses alike. Many felt, if and when prices get close to this mark, swift action by major market forces, would be on the cards. Debate though was on – about those steps. Markets however, seem to have taken the cue – before the inevitable could happen. Fundamentals are in action – impacting and swaying the markets. Crude markets appear to have mellowed out by the disappointing eurozone growth data and the lackluster performance of the US industrial sector. Oil prices sank Friday after an unexpected dip in US industrial production, spurring concerns about lagging economic activity. Industrial production in the US dipped 0.1 percent last month after a revised 0.4 percent gain in December. This was in contrast to the expectation of a modest increase in industrial output in January expressed by economists. In the meantime, the recession in the 17-nation eurozone reportedly has deepened sharply in the fourth quarter of 2012 as the debt crisis continued to sap growth and confidence and jobs were lost. The outlook remains uncertain and weak, official data showed on Thursday. The eurozone economy shrank 0.6 percent from the three months to September when it dropped 0.1 percent. In the second quarter of 2012, the eurozone economy had already contracted 0.2 percent on a sequential basis, meaning the recession now lasting three quarters. Analysts felt the latest figures were worse-than-expected, with the major economies also being dragged down, including Germany, the bloc's powerhouse. All this led to the revival of concern about the crude demand outlook. Growth prospects were further clouded by the divisions at a meeting in Moscow of finance officials from the Group of 20 nations, which account for 90% of the world's economy, over economic policy and its impact on currencies. Finance ministers from G20 states met in a bid to push forward a stuttering global economic recovery without slipping into a destructive "currency war" of devaluing currencies to boost national economies. The overriding concern of the ministers was Japan's controversial plan for "monetary easing" to boost its economy. Economists are worried that competitive devaluations could lead to currency wars, further impoverishing nations worldwide. And in the meantime, concern is also in the air about the so-called managed money net long positions in both Brent and benchmark US WTI crude oil futures that have climbed steeply during the latest rally, according to CFTC data, suggesting the fund management industry has increased bets on oil this year. “Oil as an investment class has seen a surge of non-commercial money, which is driving prices higher. That means there is clear potential for a correction over the next one to three months,” says David Wech, head of research at Vienna-based JBC Energy. All this seem impacting the market sentiments finally – and - adversely. The International Energy Agency (IEA) was quick to react, cutting its world oil demand forecast for 2013 last Tuesday. The IEA said the marginal cut of 85,000 barrels a day was in line with the prospect for slower economic growth forecast by the International Monetary Fund, which last month cut its world growth estimate for 2013 to 3.5 percent from 3.6 per cent. As per the revised IEA estimates, global oil demand would remain subdued to 90.7 million bpd, with the eurozone and Latin America accounting for much of the revisions. "The reduction in the IMF economic outlook for Europe seems particularly ominous," the agency said in its monthly report on the world oil market. Oil demand across Europe is now forecast to decline 260,000 bpd, or down 1.9 percent, instead of 235,000 bpd lower, as forecasted earlier. And while definite question marks about global crude demand scenario persist, the supply side of the equation too seems sufficiently strong, impacting the overall balance. Crude oil production in the US averaged more than seven million barrels per day in January, the highest level since November 1992, the International Energy Agency said in its monthly report released Wednesday. According to preliminary estimates, production was up by 910,000 barrels per day compared to January 2012, thanks to the development of non-conventional hydrocarbon sources including shale and tight oil reservoirs. Total US oil output increased by almost one million barrels a day in 2012, to 9.1 million barrels, the report said. However, one needs to point out here that OPEC headquarters in Vienna is looking at the scenario – a bit more positively. The OPEC said last Tuesday that world oil demand will grow faster in 2013 than previously thought, citing signs of a recovery in the world economy. Consumption of oil will expand by 840,000 barrels per day this year, 80,000 bpd more than previously expected, the organization said in its monthly report. But despite this positive spin by OPEC, some output cut too appears in offing. Tanker tracker Oil Movements now says that the Organization of Petroleum Exporting Countries will cut crude shipments by 0.9 percent this month. OPEC's export would be 23.51 million barrels a day in the four weeks to March 2, down 220,000 a day from 23.73 million in the previous period, the researcher was quoted in recent reports. These figures exclude Angola and Ecuador. Shipments from Middle East were expected to decline by 1.2 percent to 17.17 million barrels a day in the period, as compared to 17.38 million in the four weeks to February 2, according to Oil Movements. This includes production from non-OPEC members Oman and Yemen. Crude on board tankers will also average 459.15 million barrels, down 2.3 percent on the previous period, the data show. These output cuts appear in tandem with the current market requirements. Market stability is required by both – the suppliers and the consumers. And with risk premium going down over the last few weeks, the prospects of saner, more stable markets – based on fundamentals –now appear a possibility – and – not just a pipe dream.
