Fri 16 Apr 2010 10:11

Quarterly report forecasts bullish outlook


Report says market is turning bullish due to improving fundamentals, inflationary pressure and sanction talks.



Danish firm Global Risk Management has released its latest quarterly oil report for the April to June period.

In the report, the company introduces a new feature, the Global Oil Strength Index, which Global Risk has developed to evaluate important isues and their effect on oil prices.

The Global Oil Strength Index, or GOSI, is a single number between 0 and 100 that signals Global Risk Management’s expectations for the development of oil prices. A reading below 50 indicates a declining trend and above 50 an increasing trend.

The company's latest oil report, entitled "The Oil Market - Quarterly Outlook April 10", is divided into three segments, with each part focusing on three main topics which influence oil prices:

*Fundamentals – covering the supply and demand balance
*Financials – covering speculators’ interest and the development of the financial market
*Geopoliticals – covering the situation in unstable oil producing regions of the world.

Global Risk calculates the GOSI by assigning a strength rating or index for each of the three aforementioned factors and then calculating a weigthed average based on the three strength ratings.

In the GOSI for the current quarter, Global Risk has increased the index to 62 from 50 in October 2009. Please find a breakdown below.

Fundamentals 50
Financials 75
Geopoliticals 58

GOSI 62

Global Risk says the index is turning from neutral to bullish for oil prices due to improving fundamentals, inflationary pressure and sanction talks.

Fundamental Factors

In its April outlook, Global Risk says that fundamentals for the oil market have improved over the past few months.

The company points out that oil demand has increased over the past 6 months and is currently higher than non-OPEC production plus agreed OPEC quotas. However, supply remains above demand due to overproduction by OPEC members.

Global Risk says that the supply/demand balance is neutral to prices as OPEC members will simply raise production if prices increase and discuss ouput cuts if prices fall.

Global Risk's fundamental index for the upcoming period is neutral indicating that prices should be within OPEC’s announced trading range of 70-80 dollars per barrel.

Financial Factors

According to Global Risk, financials for the oil market are strong and have grown stronger over the past period.

"Money managers are increasing their bets on the oil market, USA is showing recovery and the US inflation pressure index is closing in on the last peak.

"The outlook for financial strength indicators for oil makes our outlook for crude oil prices higher than would have been the case if oil prices only followed fundamentals," Global Risk says in its report.

Geopolitical Factors

Global Risk says in its report that geopolitical factors for the oil market have become more price supportive over the past 6 months.

Even though Nigeria has increased production, worries of sanctions against Iran and the declining oil production in Venezuela have supported prices more than Nigeria's output rise, according to Global Risk, which has increased its geopolitical rating to 58, up from 54 in October 2009.

Oil Price Outlook

The oil price forecast for 2010 and 2011 has been revised by Global Risk to 85 and 96 dollars per barrel respectively.

In order to view the full report, please visit the Global Risk Management website by clicking on the link below:

www.global-riskmanagement.com


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