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Crude oil futures - Weekly outlook: April 30 - May 4

Published Apr 29, 2012 07:18AM ET
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This article has already been saved in your Saved Items - Crude oil prices ended the week higher on Friday, trading close to a two-week peak as the U.S. dollar weakened after disappointing data on first-quarter U.S. economic growth fuelled expectations for another round of easing from the Federal Reserve.

On the New York Mercantile Exchange, light sweet crude futures for delivery in June settled at USD104.78 a barrel by close of trade on Friday, gaining 0.86% over the week.

Earlier Friday, prices touched USD105.00 a barrel, the highest since April 17.

The Commerce Department said Friday that gross domestic product in the U.S. expanded at a rate of 2.2% in the three months to March, below expectations for a 2.5% increase and slower than the 3.0% pace in the prior three months.

Despite improving consumer demand, reduced government spending and business investment cut into growth.

The news was initially bearish for oil, as a weaker U.S. economy would need less oil and fuels to grow. The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand.

However, the downbeat data fuelled expectations that the Fed will introduce further monetary easing measures to boost growth in the world’s largest economy.

The U.S. dollar came under broad selling pressure following the report, as expectations grew that the Fed would keep its loose monetary policy.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, declined 0.29% on Friday to end the week at 78.78, the lowest since March 1.

Oil prices typically strengthen when the U.S. currency weakens as the dollar-priced commodity becomes cheaper for holders of other currencies.

Earlier in the week, Fed Chairman Ben Bernanke left open the possibility of further asset purchases to support the U.S. economy, following the central bank’s monetary policy meeting.

The Fed announced Wednesday that it will leave its target range for its federal-funds rate unchanged at 0-to-0.25%. The central bank also did not change the forecast that “exceptionally low rates” will remain until late 2014.

In a press conference following the rate decision, Chairman Bernanke said that the Fed’s “intention is to maintain highly accommodative stance of policy for the foreseeable future.”

Oil’s gains were limited after ratings agency Standard & Poor’s cut Spain’s long-term credit rating by two notches to BBB+ from A and gave it a negative outlook on Thursday.

S&P’s move reflected a deterioration in the country’s “budget deficit trajectory” and the “increasing likelihood” the government will need to provide further fiscal support to the banking sector.

The euro zone accounted for nearly 12% of global oil consumption in 2010, according to data from British Petroleum. There are worries that the region’s sovereign debt crisis could trigger a broader economic slowdown that would curb demand for oil.

Meanwhile, market participants continued to monitor ongoing tension between Iran and the West and a potential disruption to oil supplies from the Islamic Republic.

The U.S. Energy Information Administration said on Friday that global oil supply exceeded demand by 500,000 barrels per day over the last two months, as Saudi Arabia boosted production levels.

A potential loss of Iranian oil supplies has helped underpin strong gains in oil prices during late last year and the first quarter of this year.

But revived talks between Iran and major powers over Tehran's nuclear ambitions, along with rising Saudi Arabian and Libyan output and signs of slower U.S. economic and employment growth, helped pull oil prices back from first-quarter highs.

Saudi Arabia and Iran are the two largest oil producers and exporters among OPEC members.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for June delivery settled at USD119.64 a barrel by close of trade on Friday. The Brent contract added 0.69% over the week.

The spread between the Brent and the crude contracts stood at USD14.86 a barrel by close of trade Friday.

In the week ahead, Friday’s data on U.S. non-farm payrolls will be eagerly anticipated amid concerns that the economic recovery in the U.S. is losing momentum.

Oil traders have long been taking cues from the monthly jobs report, the most-closely followed indicator of U.S. employment, because it offers insight into the economic health of the world's biggest oil consumer.  

Meanwhile, in the euro zone, investors will be looking ahead to Wednesday’s data on manufacturing activity, as well as the outcome of the European Central Bank’s policy meeting on Thursday.

In addition, both Spain and France are to hold auctions of government debt.

Market participants will also continue to monitor tensions between Iran and the West and a potential disruption to oil supplies from the region.

Crude oil futures - Weekly outlook: April 30 - May 4

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