Current Oil Prices Decline with Lower Forecast from Caterpillar

Recent market declines extended to current crude prices after Caterpillar, the biggest producer of construction and mining equipment worldwide, reduced its sales forecast, stirring worries over oil demand.

The main contract on the NYMEX for delivery in November shed $1.32 from its settlement in the past week to a crude price per barrel of $88.73. The contract’s expiration was at the end of the trading session. Meanwhile, in London, the current oil price of Brent, for December delivery, was 70 cents lower compared to its closing level last week at $109.44 per barrel.

The futures contract on the NYMEX dropped partly due to the quarter three financial results of Caterpillar, according to John Kilduff.

Considered one of the global economy’s leading indicators, the company reduced its forecast for its profit and sales throughout the entire 2012, signaling a sharp drop in activity by quarter four, and cautioning that the world economy was weaker than expected.

It is a red flag for the commodity industry, not just crude but also materials like copper, that demand seems weak moving into the coming year, a trend which seems to indicate that next year’s demand seems soft, according to the report.

Moreover, investors complained about the uncertainty of the U.S. economy – the biggest oil consumer in the world. The country’s economic instability is seen in the midst of the upcoming presidential elections on November 6 and the potential increases in taxes and reductions in spending, called the “fiscal cliff,” that is set to happen at the end of the year.Both the equity and commodity markets are lower as overall market sentiment goes down with the uncertainty of the US fiscal cliff seemingly restricting any upside in the coming 3 to 6 months, according to analysts of BMO Capital Markets.

In addition, crude oil commodity markets are carefully observing the Middle Eastern unrest. The current tension in Lebanon and Syria offers additional upward support to the crude market, while investors try to stay vigilant about the crisis in the Middle East.

In New York and London, the crude prices per barrel fell more than $2 with demand worries from traders after a set of weak earnings reports from US firms and a disappointing crisis summit of the European Union.

By: Chris Termeer