Brent Facing Pressure From Supply and Demand Sides
Brent crude oil slid toward $107 on Wednesday morning, trading at $108.19. The commodity is facing pressure from both supply and demand sides as the US and Europe continue to struggle with financial problems and crude supply from Iran increases.
According to Reuters , the International Energy Agency has cut its demand outlook yet again for the fourth quarter and 2013. The cut comes as a result of financial and economic struggles in the US and Europe.
The US faces a looming ‘fiscal cliff' on January 1st if Republicans and Democrats cannot come to an agreement regarding the nation's deficit. President Barack Obama has proposed extending the income tax rates for all but the top two percent of Americans, while republicans have strongly opposed this notion. Many are expecting the disagreement to play out much the same as last year's debt ceiling decision, causing uncertainty in the market until the last minute decision.
Europe's financial struggle has also weighed on Brent prices. Uncertainty in Greece and Spain has caused many to speculate that the region is in danger of breaking up. Financial problems in the Southern, struggling economies may spread to stronger countries like Germany, who are currently keeping the region afloat. With decreased growth and a gloomy outlook for 2013, oil consumption in Europe is expected to decline.
On the supply side, Iranian oil exports increased by a third in October adding pressure to Brent prices. Though the country's oil has been heavily sanctioned by the West, the increase has added to oil supply in a dwindling market. However, tension in the region remains as Iran continues to develop its nuclear program against the wishes of the US and Europe.
On Tuesday, the tension was highlighted as Iran revealed new artillery systems amid large-scale military exercises. Many suspect that the exercises were meant to send a message to those threatening military action.
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