Crude oil has been on a losing streak in recent days and is set to fall further, reflecting investor perceptions that Middle East political tensions are easing.
Worries that Egyptian turmoil would spread across the Mena region receded yesterday as the government of Hosni Mubarak signalled readiness to compromise with protesters calling for Mr Mubarak to resign from the presidency.
"This week will be characterised by a drift down in crude prices on days where either no new tensions arise or where political progress is perceived," analysts at JPMorgan Chase predicted in a report on Monday.
"Investors should therefore consider taking profits on all or a portion of their remaining long positions," the US investment bank recommended.
As Brent crude slipped under US$100 per barrel in London yesterday and the US benchmark West Texas Intermediate crude dipped below $87 on renewed concerns about brimming US oil stockpiles, other analysts joined JP Morgan in predicting a "correction".
"The geopolitical risk is coming out of the oil market as the situation in Egypt looks more manageable, and so I think we'll see a correction lower," said Sintje Diek, an analyst at HSH Nordbank in Hamburg. "The market is very optimistic about the US, but we think the recovery will be very sluggish," he said.
___________________________________________
Industry Insights - Forget Europe and the US for retail and go emerging markets.
___________________________________________
Early US government data suggest oil consumption in the world's biggest economy fell by 1 million barrels per day last month, reversing a strong showing in December. Winter storms might explain lower petrol consumption as drivers kept trips to a minimum, but not the concurrent drop in US heating oil demand.
While sluggish US oil demand and higher interest rates in China could reinforce crude's recent reversal, investors should understand that global oil demand is still on a long-term rising trend, making crude sensitive to further geopolitical shocks. Immediate concerns that the Suez Canal might be closed are ebbing, but Egypt's political protests are not over and are not the only threat to fuel shipments through the strategic waterway.
In a sharp reminder of that, Somali pirates yesterday seized an Italian-flagged oil tanker off Yemen's coast.
