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Crude Plummets to 5 ½ year lows: Supply Glut Seen as Reason

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Crude Plummets to 5 ½ year lows: Supply Glut Seen as ReasonOil prices hit a fresh 5 year low in early morning Asian trade with crude futures breaking below the $52 level which is being seen as a huge negative. The weakness is on the back of concerns that the global supply glut might continue and demand pick up doesn’t seem to be present at the current moment. The sell off in crude intensified post the decision from the OPEC to hold current production levels. Add to this, the record exports from Iraq and the increase in production from Russia are being seen as huge negative for the commodity in the near term.

Lacklustre economic reports from the US economy have raised serious concerns about the strength of the global recovery along with the global demand picture. Many analysts believe that crude demand could remain subdued this year taken into consideration the state of economies in China, Japan and Europe. A weak euro which is currently trading at multi-year lows post breaking the $1.20 level is being seen as a huge negative as it reduces the purchasing power of Euro-holders to buy the dollar dominated crude. Though, many believe that if the European Central Bank was to introduce quantitative easing in January, further liquidity in the system might support prices of crude.

Traders in the coming week would be closely watching the release of the FOMC minutes on Wednesday which would provide an insight into the stance to be undertaken by the Federal Reserve with regards to short term interest rates in the near term. Traders would also be closely watching the release of the non farm payroll report to be released on Friday which would provide an insight into the growth trajectory of the labour markets in the United States as a stronger labour market could see a stronger demand for crude.

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