Crude oil prices to remain around $90 in the near term
Sharad Matade 08 February 2011

The uncertainty in Egypt and the faltering economic recovery in a few developed countries may ensure that prices may not come down dramatically from the current level

A weakening dollar, economic recovery in developed countries and the current political uncertainties in Egypt will support crude oil prices to hover at around the level of $90 a barrel in the near term.

Current crude oil prices are hovering at around $87 a barrel, while the price of Brent crude has crossed the $99 a barrel mark.

"Taking a cue from recovery in economies from developed countries, particularly from the US and European countries, the Federal Reserve Bank's decision to keep interest rates at zero levelwhich is already weakening the dollarand the current political turmoil in Egypt, has fuelled crude oil prices," an analyst (preferring anonymity) from a Mumbai-based research firm told Moneylife. 

"If these factors remain the same, then we would not see prices come down dramatically from the current level," added the analyst.

Crude oil prices are being cushioned by the current unrest in Egypt. Though this country is not a major oil supplier, the ongoing turmoil has caused a disruption in shipments through the Suez Canal, which accounts for around 5% of the world's oil & gas shipments.

Around 1.8 million barrels of oil per day move through the Suez Canal.
There are still uncertainties over the stability in the country and the industry fears that violence would spread in the area, which is one of the main oil-producing regions in the world.

"If the situation in Egypt worsens, we will see more increase in prices," added the analyst.
The greenback tumbled against other currencies as the Federal Reserve Bank maintained the stance of not changing current interest rates.

Commodity prices are shooting up all over the world and crude oil prices have become the main concern globally for all economies.

Economic recovery in the world largest oil-consuming country, the US, has finally gained momentum after the aftermath of the global recession is slowing fading. 

However, American recovery will fuel demand for crude oil in the future, which in turn will push up prices even further.

The Institute for Supply Management's index of manufacturing activity rose to 60.8 from 58.5 in December, showing 18 straight months of expansion for the sector. Any value above 50 for the PMI reflects expansion in the manufacturing sector.

"An indication of recovery in the manufacturing activity would cushion prices," added the analyst.

China's PMI (Purchasing Managers' Index) has also remained above 50 level in the last month. US unemployment data has fallen to 9% from 9.8% in just the past two months, which is another indicator that the economic is recovering from the recession.

However, market experts also feel that the current levels of crude oil pricesmainly Brent crudemay derail the recovery.

As of now, analysts are in the wait-and watch mode, and hope that Egypt does not implode, which would set the Middle-East on fire.

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