Global Economic Conditions Remain Positive

After crude oil reached on Tuesday the highest in four months amid upbeat economic data, some investors started to lock-in profits on Wednesday dragging prices slightly lower, but as the global economic outlook remains positive, losses may be limited today.

Crude closed at a four-month high Tuesday on signs of stronger economic growth in Europe after the German investor confidence struck the highest since the start of the eurozone debt crisis in 2010, brightening the outlook for Europe’s recovery.

In Japan , the world’s third largest economy, the central bank adopted a 2.0% inflation target and announced plans to begin open-ended asset purchases next year to lift the economy out of recession, improving the outlook for demand on oil.

Meanwhile, in the United States a report showed that 2012 was the best year for the nation’s home sales since 2007, while fears of a possible default in the U.S. eased amid believes lawmakers will agree soon to lift the debt ceiling.

Crude is trading as of this writing around $96.55 a barrel compared with the opening at $96.69 and with the highest at $96.83 and the lowest at $96.51. Crude finds on the short term resistance at $97.00 and support at $96.00.

Although sentiment is improving among the market participants amid recovery signs in the world’s largest economies, the overbought market, the ample supplies of oil and gasoline and the uncertain outcome of Washington’s negotiations may bring some losses .

“The sentiment from investors is getting better than before but it may take 1-2 years to be really confident about a rapid economic growth. So the oil market may move in a narrow range this year, not as volatile as last year”, said Ken Hasegawa from Newedge, Japan.

Caution is also rising today amid the continued earnings season and ahead of the World Economic Forum that begins in Davos, Switzerland on Wednesday, while the eurozone will release its consumer confidence while UK will release its employment report.

Moreover, Goldman Sachs cut yesterday its 2014 U.S. crude forecast by $1.50 to $96.50 a barrel, and warned that “the Texas Gulf Coast may face a glut of light sweet crude oil later this year as other expanded pipelines move more oil south from the Midwest”.

Today, the American Petroleum Institute (API) will release its weekly U.S. oil inventory data delayed by one day due to Martin Luther King holiday on Monday, while the Energy Information Administration (EIA) will release the official inventory data on Thursday.

Brent is trading as of this writing around the $112.23 after falling 0.17%; natural gas is trading at $3.590 per 1,000 cubic feet after rising 0.90%; gasoline is trading at $2.8314 a gallon after rising 0.05%; heating oil is trading at 3.0639 after falling 0.14%.