Some respite for oil at the end of week following sharp sell off

The price of oil (WTI) dropped 6.5% last week, despite a minor rally on Thursday and Friday, as vague rumours of a release of oil from the U.S. strategic petroleum reserve and the possibility of an increase in production from Saudi Arabia was compounded by a sell off due to futures expiration. On top of that, the U.S. Energy Information Administration on Wednesday reported an increase of 8.5 million barrels in crude supplies for the week ended Sept. 14, above forecasts of a 2.5 million increase. 

The sell off was unexpected after the announcement of QE3  by the FOMC last week which would have normally driven prices higher as a result of a combination of increased global growth expectations as well as a weakened dollar. However, with downward pressure on demand and the possibility of more supply from the likes of Saudi Arabia, oil trader’s sentiment seems to be firmly in negative territory right now.

However, any geo-political trigger such as a heigtening of tensions between Iran and Israel, could quickly reverse downward momentum, meaning that oil is likely to trade in the $90-100 range for the foreseeable future.