What is making the energy markets go up and then down — in a matter of days — is not easy to comprehend.
A number of factors appear pulling the markets from opposite ends.
Late on Friday, as weekend approached, markets headed for the first gain in three weeks. Most realized, the reason was more geo-political than fundamentals.
As tension between Iran and the West flared, raising the specter of a showdown with a major impact on supplies of crude from Iran and the possible disruption of shipment from the narrow Straits of Hormuz, fear premium reentered the market calculation — once again.
Concerns about supplies appear began providing unexpected support to the markets.
And additionally, this last Wednesday, as the central banks of Europe, the US, Britain, Canada, Japan and Switzerland, in a concerted move, announced reducing the dollar borrowing rates, oil prices edged higher amidst a surge in global stock markets.
Separately, China's central bank also acted to release money for lending. It moves to shore up the faltering growth by lowering bank reserve levels for the first time in three years. And this helped the market sentiments to improve somewhat.
However, signs of weak US crude demand kept prices from rising further.
The Energy Department's Energy Information Administration said oil and gasoline supplies grew last week, as imports rose and refineries slowed down because of weak demand.
And all this happened despite the specter of double dip recession continuing to haunt the world.
Wasn't in just another flip on the chart — remained a pertinent question. And there were reasons for this lack of enthusiasm.
The global economic engine is emitting clear signals of an emerging slowdown.
As per reports, manufacturing activity contracted in the euro zone and much of Asia in November, pointing to a global slowdown.
The J.P. Morgan Global Manufacturing Purchasing Managers Index (PMI) fell to 49.6 in November from October's 49.9 — adding to worries over an overall contraction in world factory activity.
Reportedly in the euro zone, factory activity shrank in November at its fastest pace in two years, reinforcing the view that the debt-strapped region was already in recession.
Meanwhile, British manufacturing also contracted at the fastest pace in two years, raising the risk that the UK economy may also suffer the same fate.
China's official purchasing managers' index too showed factory activity shrank in November for the first time in nearly three years. And it was China in tandem with the developing world that had helped the world overcome its financial and economic woes in 2008.
That crucial support to the global economy, also now seems dwindling.
The index said it expected the world economy to "muddle through" in 2012, propelled by higher growth in developing economies, but that "risks for a double-dip recession have heightened."
Energy markets could not have missed the cue.
In the meantime, the UN has also sharply downgraded its forecast for global growth next year, and the International Monetary Fund, says it would also cut its growth projections next month.
The UN slashed its forecast for global growth next year to 2.6 percent from a 3.6 percent prediction made just six months ago.
"The global economic outlook will be lower, and in certain parts much lower than what we had initially envisaged," says IMF Managing Director Christine Lagarde
"The current crisis, to some extent, is more serious and challenging than the international financial crisis following the fall of Lehman Brothers," Zhu Guangyao, China's advance coordinator to the Group of 20 talks and a vice finance minister said.
Yes, for the moment, energy markets seem to be shrugging off some of the woes of the global economy, strengthening over the last few days in the wake of growing concerns on Iran.
Also the comparatively soft crude oil market began firming up on security and stability issues in the Middle East amidst reported violence in the region.
But hardly a week back, markets sentiment were considerably contrasting. Energy markets were in retreat.
The primary reason for the weakness was the growing concern on the European debt crisis. And that continues.
The ripple effect of Europe's debt crisis was making major dents to markets sentiments, causing turmoil in financial markets. And as bearish conditions continue to spread throughout the Euro region, traders appear pressuring the euro, driving up the US dollar and lowering demand for the dollar-based crude oil market.
Markets, on the whole, continue to remain obsessed with the issue European debt crisis. And as Portuguese and Hungarian debts were downgraded to junk status, markets also began feeling the additional heat.
Adding to pressure was the fact that the European Central Bank's Italian bond buying campaign also had failed.
With each passing day, many get convinced that Europe is soon to plunge into a recession. And indeed, if Europe falls, the US is likely to follow through.
The Fed has done just about all it can to keep the economy afloat but not all the things are in its control.
And all this carried serious repercussion to oil markets.
From a supply perspective too, all this meant that inventories are likely to remain high — for some time to come.
And demand may go down in the short to medium term, many in the markets are now stressing.
And thus despite the recent somewhat strengthening of the markets and barring indeed a major geopolitical impasse, much beyond anyone's control, in the short to medium term, many observers now believe prices are in for a battering.
Only a robust economy can inject some sense of purpose within the global energy fraternity.
And that seems very much missing now — despite some good news in recent days.
Conditions could only deteriorate from here — one can't help conceding, at the moment.
