Crude Oil Trading – Weekly oil price outlook

The key factors to consider right now are the liquidity and solvency concerns being raised due to the contagion effect of the European debt crisis. Both these concerns are being raised due to fear for lack of availability of credit to businesses and are reinforced by the jump in LIBOR rates. If these credit concerns are managed through active steps by the ECB, liquidity concerns will be alleviated and these steps would increase the likelihood of businesses staying solvent.

For oil, reduction in Euro-zone growth projections and its multiplier effect across the global economy only spells lower price outlook for oil. Combined with the drain on liquidity in Europe and a general nervous in markets with rising volatility in commodities and the expected weakness in Euro there will be a lot of action for traders with the right trade and direction. The more likely direction for the next three days is going to be downwards for crude oil unless and until there is a surprise. Early next week we will also get hit by the action in oil ETFs as they roll over their future exposure to avoid delivery. If the market doesn’t find a base soon enough, we will see Euro breaking 1.20 and Oil getting closer to lower 60’s within the next two weeks.

If you don’t have a view or have been priced out of the market given your risk appetite, the safest steps would to park one’s money in cash or money market funds until the market has clarity on the credit situation in Europe. Any investments in equities should be in defensive stocks that offer stable income and are immune to credit concerns and factors that may cause a decline in the global GDP growth rate. Small caps are a bad place to be during such a time as any credit squeeze would have a catastrophic impact on small business which tend to be more reliant on short term credit to manage working capital and day to day operations.

 

Author: Jawwad