Current crude oil prices to subside further says CNBC

A weekly account of oil market outlook by CNBC revealed that oil prices will decline some more during the week. The report points to the slack in economic activities in some Western countries and in China as the main triggers, but the onset of hurricane months in the U.S. and the crisis in the Middle East could possibly keep prices from dropping further.

For consumers, the decline in crude prices is regarded as an incentive as gas prices have become cheaper, down to $3 and below in some regions of the U.S. Lower gas prices also tend to mitigate inflation.

Cheaper pump prices may prompt consumers to fill up their tanks as the season for summer road trips has begun.

Kirk Howell, SunGard Kiodex COO commented that crude oil prices went down by 25 percent from April levels, and concluded that the U.S. is oversold for the short–term. China, on the other hand, is showing signs of going through a critical phase, and may eventually experience an economic downturn.

As the recent hurricane has signalled the onset of stormy months in the U.S., crude oil prices may increase temporarily. Traders, however, disclosed that oil stock would be sufficient to buffer expected short-term supply cuts due to emergency plant closures in the Gulf of Mexico (GOM) amid hurricane forecasts.

On Saturday, owners transferred GOM production workers to safer areas as harsh weather threatened the gulf zone. About one-fifth of U.S. crude oil is produced in the GOM.

LA-based Commodity Advisor Tome Weber said that after crude oil prices per barrel slid to lower than $80, it’s expected to take on a downward trajectory, possibly reaching a low of $68 per barrel amid the EU crises and a lackluster global economy. Chief Executive Officer Daryl Gupp opined that oil prices could rally for a short while due to interruptions caused by stormy weather in the GOM. In the longer term, however, low prices will prevail.

UBS Commodity Strategist, Dominic Schnider said that OPEC will slash current oil output to temper the rising volumes of crude inventory. This could help WTI to settle below $75 per barrel, with Brent settling at slightly below $90 per barrel. If OPEC decides not to implement oil cuts, WTI might slide to lower than $65.

“The oil sector is already battling ample availability of supply – especially inthe U.S.,” Schnider added.

By Chris Termeer