Crude oil continues to fall ahead of the FOMC meeting and rate decision due tomorrow. In Tuesday’s Asian session WTI is trading at 105.49 down by 70 cents after taking a major tumble on Monday. Brent oil is trading at 109.66 flat this morning. Oil prices on receding fears of a disruption in supply after a US-Russia deal to avert a Western military strike on Syria, analysts said. New York’s main contract WTI dropped $1.62 in New York trade yesterday, while Brent eased $1.63 as investors reacted to the week-end deal between US Secretary of State John Kerry and his Russian counterpart Sergei Lavrov to dismantle Syria’s chemical weapons by mid-2014. Investors had earlier feared that a possible US-led strike on Syria in retaliation for its alleged use of chemical weapons against its own people would spark a wider conflict in the crude-rich Middle East.
The Arab oil embargo in 1973 slammed the economy, and officials vowed to slash imports — especially the 5 percent of the U.S. oil supply that came from Persian Gulf countries. Forty years later, after a recent run of growing domestic oil production and dropping petroleum consumption, the share of the U.S. oil supply coming from the Persian Gulf is 12 percent. After the embargo crisis in the ’70s, the U.S. did cut its Persian Gulf imports — for a few years. But after 1985 the U.S. didn’t resist the lure of cheap oil from Saudi Arabia and other producers in that region. And much of our recent rise in oil production has gone to offset reduced imports from countries outside of the Middle East, such as Mexico. Although these numbers are a bit misleading as the US does import a great deal of oil as of October 2012 it became a net exporter of oil, meaning that the US is no longer dependent on oil from elsewhere, it could redirect its domestic supply. But a drop in world oil supply would have drastic effects on prices and the global economy. Meanwhile, other countries including China are even more dependent on Persian Gulf oil than the United States is. So any substantial disruption of Mideast oil supplies would send oil prices soaring, and even the threat of disruption can cause temporary spikes.
Libya took the first steps towards restarting some of its oil output on Monday as the government said a tentative deal with protesters in the country’s west allowed pumping to resume from a major field. This will help ease prices as the three major ports in Libya have been closed disruption global supplies and pushing up prices even before the Syrian chemical weapons problem surfaced.
Meanwhile, traders are also awaiting the outcome of the Federal Reserve monetary policy meeting tomorrow. The policymakers are widely expected to announce the start of a pull-back of the central bank’s asset purchase program, known as quantitative easing (QE).
Natural gas ended higher for a third straight session on Monday and continues to gain this morning trading at 3.765 up by 23 points. with still-warm temperatures, rising nuclear plant outages and expectations for a supportive inventory report on Thursday driving the front contract to an eight-week high. The US approved another proposal for exports of natural gas which is helping drive demand. Large-scale gas exports from the United States will narrow the gap between U.S. domestic prices and those in Asia, but the boost to U.S. domestic gas prices is likely to be smaller than U.S. gas producer’s hope and consumers fear.
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