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    Crude's Brief Flirtation with $50

    Crude oil retreated from its highest price in three months as increased Chinese imports were trumped by predictions of plentiful supply through next year. 

    West Texas Intermediate (generic), the U.S benchmark, dropped to a low of $46.60 a barrel today in New York, after having closed at $49.63 and touching $50.92 on Friday, crude’s highest quote and finish since July 21st.   WTI was trading at $47.56 at 1:32 pm on the Nymex. Brent crude (generic), the global oil benchmark, was at $50.00 at 1:35 pm in New York.  

    The International Energy Agency (IEA) predicted that oil demand will slow next year and that Iran's return to the markets, due to the nuclear treaty with the West which lifts almost all sanctions on the Iranian economy, will add to the world's oversupply of crude oil already glutted by production from American shale oil fields.

    World crude prices have declined over 60 percent in the fifteen months to September as a rising dollar added to the  pressures on oil from U.S. surging production, a slowing global economy, particularly in the largest marginal user, China, and the Saudi Arabian decision to maintain its production level despite  lower prices. The Organization of Petroleum Exporting Countries reported that its September output was at a three year high. 

    Chinese imports of all categories dropped 20.4 percent on the year in September, but commodity imports were relatively strong and oil imports rose by 1.4 percent.  

    The IEA forecasts global demand at 1.8 million barrels a day in 2015, a five year high, which the consumer country organization said would slow a third to 1.2 million barrels a day in 2016.  It expects Iran’s production to increase up to 25 percent toward 3.6 million barrels a day from 2.9 million barrels a day now, when sanctions ended early next year.

    In addition, many U.S. shale wells, idled with prices at current levels, could easily be activated if prices rise, effectively capping crude at around $60 a barrel. 

    The degree to which China's economy, the second largest in the world and its largest importer of crude oil, is slowing is the subject of considerable debate.

    The Chinese manufacturing sector has been contracting for seven straight months and nine of the last ten, in one private purchasing managers' index. Even the official government measure has been negative for two months.  Industrial production, retails sales, exports and imports, fixed asset investment and industrial profits have all weakened or fallen into decline.  

    Yet the Beijing government reported 7.0 annualized GDP growth in the second quarter, a figure met with substantial doubt in many economic quarters. The government expects a slight drop to 6.8 percent annualized in the third quarter when the statistics are released this coming Monday.  

     

    Joseph Trevisani

    Chief Market Strategist

    wti oct 13

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