mines prices markets

Supply and Demand: Last week it was announced that crude oil inventories rose 1.3 million barrels the week-ending December 2. If the report based on the week-ending December 9 also shows a rise then this may serve as a sign that demand is already beginning to fall. If the downtrend in demand continues then it may mean that buyers are already anticipating the possible recession in Europe spreading to the U.S.

European Sovereign Debt Crisis: The question that may be answered this week is will the European summit agreement be strong enough to put an end to the European sovereign debt crisis? Friday’s headline may be enough to drive crude oil prices higher on the opening next week, but will it be enough to sustain a rally. Traders should be watching for a “buy the rumor, sell the fact” situation.

U.S. Economy: The U.S. economy continues to show some signs of growth, but at a very slow pace. There is definitely an air of caution as businesses and consumers wait for something concrete to develop out of the Euro Zone. Traders will be watching Europe this week so any surprise news regarding the U.S. economy is not likely to move the market substantially.

Middle East Conflicts: After years of ignoring developments in the Middle East, traders are beginning to pay more attention. At the forefront remains Iran. Traders are fairly certain that U.S. and European-led sanctions are going to be implemented, but the consensus is that they will be enforced after the winter heating oil season. This means that military action by Iran may be the key factor to watch for until the spring.

 The real reason why crude oil remains vulnerable to the downside is the lack of clarity and conviction by the European policymakers. With their backs against the wall because of numerous failures in the past, the possible deal that was cut on Friday has to stick or Europe may plunge into a recession sooner than expected especially with financial reforms in the form of austerity measures looming.

Crude oil traders will be watching for a follow-through rally this week following Friday’s late session surge. They are likely to take their clues from the Euro and the equity markets. If these markets rise, then this will serve as a sign that traders are willing to take on additional risk. It may be too early to tell when traders will begin pricing in a European recession, but what is clear is that if the support cluster at $95.36 to $95.29 on the weekly chart fails then the market may take a hard hit.....READ MORE RESOURCES