Crude Oil- An Integrated Analysis Special Report by Www.capitalheight

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Crude Oil – An Integrated Analy

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CONTENTS

Crude oil Prices in 2011

China’s demand in 2011U.S Dollar

Europe’s recovery

Global crude oil & Liquid fuel consumption

Non-OPEC supply

Crude oil and Liquid fuels overview

Technical View




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Crude oil price in 2011

When analyzing the prospects of crude oil price in 2011, there are several aspects

worth considering. The expected increase in world demand for Oil in 2011 - IEA

(International Energy Agency) expects petroleum demand worldwide in 2011 to be 88.8

million barrels per day, which is roughly a 1.6% increase in demand for oil in 2011

compares to 2010; in 2010 the daily consumption was estimated at 87.4 MB/d. OPEC,

which is responsible for about 40 percent of the world crude oil supply, announced, in a

recent OPEC meeting, it will sustain its current quota of 24.845 million which was setback in 2008.

China’s demand in 2011

On the one hand, Asia’s demand for energy is responsible for 70% of the world energy

growth in the past couple of decades, in which China was responsible for 40% of it.

Also, China’s energy demand nearly tripled since 1990. On the other hand, as

presented above, it’s expected that China’s growth in demand for crude oil will decreasecompare to 2010. This slowdown could be because of China’s fight to cool down its

economy as there inflation pressures increase (as of Nov 2010, the Y-2-Y inflation rate

was 5.1%). Therefore, China’s role in driving crude oil price higher will remain to be

seen.

U.S. dollar

The U.S. has taken several steps in the past couple of years that reduced the value ofthe dollar against major commodity markets and drove them high (such as gold prices).

I refer to the very low interest rate which has remained at 0.25% in 2009-2010, and the

quantitative easing phase 1 and 2, in which the Federal Reserve gave loans to U.S.




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banks in an attempt to stimulate the U.S. economy. As the U.S. dollar continue to loose

its appeal and worth, investors will keep on relying on the commodity market and

consequentially will drive commodities prices up, including crude oil price.

Europe’s recovery

The Euro zone is also a key player in consuming crude oil, and as the year will

progress, Europe’s recovery from the recent slowdown could affect crude oil demand

and price. Below are the other factors that also constitute to the study.

Global Crude Oil and Liquid Fuels Consumption

World crude oil and liquid fuels consumption grew by an estimated 2.4 million bbl/d in

2010 to 86.7 million bbl/d, the second largest annual increase in at least 30 years. This

growth more than offset the reductions in demand during the prior two years and

surpassed the 2007 consumption level of 86.3 million bbl/d. EIA expects that world

liquid fuels consumption will grow by 1.5 million bbl/d in 2011 and by an additional 1.7

million bbl/d in 2012. Non‐OECD countries will make up almost all of the growth in

consumption over the next 2 years, with the largest demand increases coming from

China, Brazil, and the Middle East. EIA expects that, among the OECD regions, only

North America will show growth in oil consumption over the next two years, offsetting

declines in OECD Europe and Asia.

Non‐OPEC Supply

EIA projects that non‐OPEC crude oil and liquid fuels production will increase by

170,000 bbl/d in 2011 and then decline slightly in 2012. Increases in non‐ OPEC oil

production during 2011 will be concentrated in a few countries, particularly China and

Brazil, where EIA expects annual average production growth of 140,000 and 170k bbl/d,




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respectively. In 2012, EIA expects Canadian production growth to average 170k bbl/d

while China and Brazil grow by 140k and 110k bbl/d, respectively. Other non‐OPEC

production is expected to decline. EIA expects that Mexico’s production will fall by

about 220k bbl/d in 2011, followed by a further decline of 80k bbl/d in 2012. Similarly,

production from the North Sea will fall by 210k bbl/d and 170k bbl/d in 2011 and 2012,

respectively.

The former Soviet Union republics to increase production by 320k bbl/d in 2011,

followed by a production decrease of 180k bbl/d in 2012 mainly driven by decreases in

Russia, whose West Siberian fields are expected to decline significantly. Projected U.S.

crude oil and liquid fuels production declines by 100k bbl/d in 2011 and by a further

160k bbl/d in 2012.

Crude Oil and Liquid Fuels Overview

We also expects continued tightening of world oil markets over the next two years,

particularly in light of the recent events in North Africa and the Middle East, the world’s

largest oil producing region. The current situation in Libya increases oil market

uncertainty because, according to various reports, much of the country’s 1.8‐million

bbl/d total liquids production has been shut in and it is unclear how long this situation

will continue. The market remains concerned that the unrest in the region could

continue to spread. The forecast for total world oil consumption grows by an annual

average of 1.6 million bbl/d to 2012. Supply from non‐Organization of the Petroleum

Exporting Countries (non‐OPEC) countries grows about 0.2 million bbl/d this year and

then will fall slightly in 2012. Consequently, the market will rely on both inventories andsignificant increases in the production of crude oil and non‐crude liquids in OPEC

member countries to meet projected world demand growth.




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Onshore commercial oil inventories in the Organization for Economic Cooperation and

Development (OECD) countries remained high in 2010, but floating oil storage fell

sharply. EIA expects that OECD oil inventories will decline to the lower bound of the

previous 5‐year range by the end of 2012.

There are many reasons for market uncertainty that could push oil prices higher or

lower than current expectations. Among the uncertainties are: the continued unrest in

producing countries and its potential impact on supply; decisions by key OPEC member

countries regarding their production response to the global recovery in oil demand and

recent supply losses; the rate of economic recovery, both domestically and globally;

fiscal issues facing national and sub‐national governments; and China’s efforts to

address concerns regarding its growth and inflation rates.

Rising crude oil prices are the primary reason for higher retail prices, but higher refining

margins are also expected to be a contributing factor. It is estimated that natural gas

working inventories ended February 2011 at 1.7 trillion cubic feet (Tcf), slightly below

the 2010 end‐of‐February level. Inventories are expected to remain relatively high

through 2011. The projected Henry Hub natural gas spot price averages $4.10 permillion Btu (MMBtu) in 2011, $0.29 per MMBtu lower than the 2010 average. Also, the

natural gas market will begin to tighten in 2012, with the Henry Hub spot price

increasing to an average of $4.58 per MMBtu.

In next section, we have illustrated our technical view on Crude oil by presenting its

various averages, Fibonacci retracement levels, Expansion levels and its in depth

analysis using various technical indicators on different time frames of charts supporting

our technical view, and on the basis of these our technical target on Crude oil.




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TECHNICAL VIEW

Crude Oil CMP - $113.05 Target Price - $121

Moving averages

Moving Averages 20 Day 50 Day 100 Day 200 Day

Daily $105.11 $99.24 $93.99 $86.41

Weekly $94.42 $84.52 $78.68 $82.02

Fibonacci retracement levels

Levels 0.0% 23.6% 38.2% 50% 61.8% 100%

Price $33.49 $60.09 $76.68 $90.30 $103.91 $147.9

Expansion levels

SCRIPT 38.2% 50% 61.8% 76.4% 100% 138.2% 150% 161.8%

Crude $87.22 $93.44 $99.66 $107.40 $120.04 $140.20 $146.4 $152.67

Weekly Pivot

SCRIPT R4 R3 R2 R1 P S1 S2 S3 S4

Crude $124.65 $118.65 $112.65 $110.57 $106.65 $104.57 $100.65 $94.65 $88.65



We will study the expected

view, The weekly chart show

historical high around $147.8started its bullish correction. I

23.6% Fibonacci retracemen

assisted to breach 38.2% Fi

about one year. Crude conso

trendline drawn from troughs

support of 50% retracement

given the ongoing geopolitical

ovements for crude oil from a simple cl

the aggressive descend that occurred aft

5 towards the bottom of 35.12 zones, fronside this correctional wave, oil succeeded

t and built a solid technical base on this l

onacci level at $ 78.00 per barrel, wher

lidated near its 50% retracement and took

of Feb 2009. Now it has breached its cons

and is resisting at its 61% retracement,

tensions; then can test its upward resistan


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assical point of

r recording the

m where crudein passing over

vel. This base

it hovered for

solid support of

olidation taking

hich if broken

ce line at $120.



Below is the weekly chart of

RSI is at 73.37, a bit above it

RSI; it is headed upward in acompliment Crude oil prices i

Below, Crude is used with

average; we can see that rec

its high volatility in given sc

bullish signal in short term.

rude oil with momentum oscillator Days R

overbought zone of 70, though if we exa

channel and next resistance for RSI is atnear short term period.

trend indicator, bollinger Bands, with 2

ently the upper band is breached by crude

nario & it is giving space for prices to fil


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SI. We can see

ine the trend of

5.14 which will

0 Day moving

prices showing

l in; which is a



Below is the monthly chart

august 2005 and if we exami

bullish above the trendline an

this long standing trendline a

and is now overall bullish. T

$115 - $118 we may see a

uptrend in coming short ter

Crude oil prices from $35 to

its next uptrend to $90. The

left a long upper shadow; tho

complimented crude oil price

$113.16. The next target fro

100%. From there, the next e

f Crude oil. We have drawn a trendline f

e the trendline, the importance is that pric

d bearish below it. Recently Crude oil price

nd took a solid support on it in this curren

e prices of crude oil will be in uptrend an

pullback or correction thought the prices

period till June. Next, we have seen a

87 where it formed a sollid support at $67

expansion level of 61.8 is breached at $1

gh given the on going Mid-east crisis and i

s to breach this level and made a fresh 2

here for crude pirices is $121 at the ex

xpansion level of 138.2 comes at $139 and


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rom troughs of

of Crude oil is

s has breached

t month Candle

at targets like

ill contiinue its

n expansion of

and headed for

0 where it has

nflation worries

½ year high of

ansion level of

150 at $145.



In the monthly chart of crude

time high of $147.85 to $35.1

recently where prices also to

76.4% is at our target of $120

oil prices tend to be bullish.

oil below, its Fibonacci retracement of do

1. If we see the retracement of 61.8% wh

ok solid support formation on it. The next

as well complimented by our trendline abo


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ntrend from all

ich is breached

retracement of

ve which crude




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Crude Oil- An Integrated Analysis Special Report by Www.capitalheight