Crude’s minor gains on commodity index will not sway trend

Crude oil futures posted some gains on the Asian commodity index today, rising near the $96 per barrel mark. The small upswing in the oil commodity futures comes a day after they tumbled under the weight of OPEC’s new output ceiling cap and Italy’s skyrocketed borrowing costs.

Italy’s officials announced that the nation was forced to pay out 6.47% on its bond yields, the highest such figure in the history of the euro, and what many investors and economists have come to believe, the last sign that Europe is rapidly marching towards another recession.

West Texas Intermediate crude oil prices for delivery in January rose 59 cents to $95.54 per barrel in electronic trading on the New York Mercantile Exchange.  Oil investments in the American benchmark commodity futures dropped more than $5 yesterday to settle at $94.95 for the session.

On the London-based ICE Futures Exchange, Brent crude oil gained 15 cents and settled at $105.17 per barrel by mid-afternoon.

The primary culprit behind crude oil’s recent sharp fall was the outcome of OPEC’s production level meeting, which took place in Vienna yesterday. Representatives from the group, which supplies more than a third of the world’s crude oil, stated that by their projections, global demand for the fuel will continue to grow in the year 2012. OPEC used the projections as justification to raise its production ceiling cap to 30 million barrels per day. The controversial decision drew instant criticism and caused major downward shift of crude futures on the commodity index. Many took OPEC’s resolution as a cue to overproduce in a niche that is literally collapsing from a lack of demand. Global analysts have also stated repeatedly that while demand may see some minor upturns in the first half of 2012, they will by no means be sufficiently grand to counter the 11% increase in output that the bloc is planning to execute.

In the hours preceding the decision, WTI crude was trading near the resistant $100 per barrel mark on the commodity index in New York. The fuel has made a tremendous comeback after plunging as low as $75 per barrel in the beginning of October on signs that the economy of the U.S. was on a firm path toward recovery.

However, while the financial state in the U.S. continued to improve at a slow but steady pace, the rest of the fall and winter saw the euro zone crumble under the weight of its massive sovereign debt. As confidence in Europe dwindled, as did crude oil investments, and the troubled commodity futures have been fluctuating around the $95 per barrel level since then. They are certainly in no shape to sustain the kind of demand cuts that OPEC’s new production targets will bring.

Both investors of the fuel and economists are now bracing for further falls in crude on the commodity index. Some of the grimmer reports on the matter project for the fuel to continue falling through the bulk of 2012, with Brent finishing the twelve month stretch at a low of $85 per barrel.

Persisting fears over the debt crisis in Europe has also taken a toll on the euro on the currency charts. The dollar has gained tremendous ground since the last summit between the EU yielded little else but hollow hope. Crude oil and other greenback-priced commodities tend to falter whenever the euro recedes on the charts, as foreign traders do not wish to trade at a disadvantage.

By Chris Termeer