Oil spot price: European downside risks undercuts Brent

on Nov 7, 2013
Updated: Oct 21, 2019

**iNVEZZ.com, Thursday 7 November:**

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The price of West Texas Intermediate (WTI) crude oil has today remained under pressure from short-sellers, despite data showing US GDP in Q3 was stronger than expected. Brent crude has dropped sharply, following news of the ECB’s rate cut and US congress considering relaxing restriction on US oil exports.
**ECB rate cut and US GDP**
In a surprise move today, the European Central Bank decided to cut its main refinancing rate by 25 basis points to 0.25 percent, fuelling a sharp rally of the US Dollar Index to a 50-day low at 81.55.

At the subsequent press conference ECB president Mario Draghi said that risks remained skewed to the downside and the European recovery is still “fragile”.
According to a report by the Bureau of Economic Analys, the US GDP q/q advanced by 2.8 percent in the third quarter. Analysts were actually expecting growth of just 2.0 percent, following the 2.5 percent rise in Q2. The news boosted the US dollar as Brent crude oil futures slipped lower.

The benchmark European crude oil for December settlement on the ICE Futures Europe exchange has so far today decreased by 1.42 percent, to $103.75 a barrel as of 16:15 UTC.
**Loosening restrictions on US exports**
The US Congress is likely to consider loosening contraints on US oil exports, said lawmakers. However, any push to sell additional crude overseas may be opposed by members concerned about the impact on gasoline prices.

The prospect of selling US oil to other nations would be a frought domestic political encounter at a time when Americans are struggling with high energy prices, said Daniel Weiss, director of climate strategy at the Center for American Progress. “It’s hard to imagine many congresspeople voting to export such a vital commodity to other countries,” Weiss added.

Senator Lisa Murkowski, the top Republican on the Senate Energy and Natural Resources Committee, believes the debate on oil exports will happen “sooner rather than later.”
US oil production is at its highest point in more than two decades as technological progresses and a shale gas revolution in the States allows drillers to extract oil from shale rock formations.
**A tale of three crude oil contracts**
An attempt at a fundamental explanation of the recent downtrend of WTI is provided in the chart below by Emad Mostaque, strategist at Noah Capital Markets.
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While the 1-month, 12-month and 36-month WTI contracts moved up during the Arab Spring, last year’s Iran fears left the curve three years out relatively static, notes Mostaque. However, the sharp rally this Summer fulled by the geopolitical risks in Syria and Lybian outages saw the three curves disconnecting. “It looks like it may be mean-reverting with a vengeance as production picks up once more, given the physical delivery aspect of crude futures”, said Mostaque in the beginning of October. Since then the price of WTI futures has tumbled to as low as $93.11, reached on Tuesday this week. “Iraq is likely to enter civil war next year, taking up prices once again, but that should be a 2011-style move of the whole curve rather that the silliness” seen in 2013, opines Mostaque.
The WTI contract for December delivery on the New York Mercantile Exchange (NYMEX) had at 16:15 UTC today given up 0.84 percent to be at $94.00 a barrel.

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