Mecklai graph of the day: Where will crude oil bottom?

As seen in below graph both, Brent crude and NYMEX have fallen by more than 20% from its highs of $125 and $107 per barrel respectively, reached in March 2012. The recent fall is on account of global slowdown coupled with comments by OPEC cartel that is expected to keep its production ceiling unchanged while Saudi Arabian Oil Minister Ali Al-Naimi said that "maybe" the OPEC needs to increase the output ceiling to more than 30M bpd where they should have actually curtailed the production on account of low demand. Also, the International Energy Agency revised its 2012 demand forecast downwards by 100,000 bpd amid fears that slowing global growth will reduce the demand side pressure.

In addition Bernanke’s lack of clarity on expectations of QE 3 also added to the ongoing Oil price woes and with US exempting some of its allies from the implementing the sanctions on Iran oil trade have reduced the fears of supply disruptions. With the global oil markets remaining well supplied and demand deteriorating further on the account of economic slowdown the oil prices are likely to fall further, provided the OPEC nations keep their overall crude output unchanged and any reduction in the same may provide some respite to the plummeting oil prices.

As it can be seen from above graph that Brent crude oil price has now fallen more than 20% from the highs reached in March. According to OPEC, where the cartel is expected to keep its production ceiling unchanged, Saudi Arabian Oil Minister Ali al-Naimi said that "maybe" the OPEC needs to increase the output ceiling to more than 30M bpd. The International Energy Agency downwardly revised its 2012 demand forecast by 100,000bpd amid fears that global growth will disappoint to the low side. The Oil prices also slumped after the Fed Chairman Ben Bernanke downplayed the possibility of further easing at the testimony before the Congress and more exemptions given by the US to its allies in sanctioning the Middle East nuclear power Iran. Oil demand may recover more slowly next year than previously expected, because there is no evidence the global recession has ended, according to the International Energy Agency (IEA). All these reasons have put pressure on oil prices and we can expect further reductions in oil prices in near term.

The below graph shows the movement of oil prices of NYMEX crude and Brent crude

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