Crude oil futures - Weekly outlook: April 2 - 6

Investing.com - Crude oil prices edged modestly higher on Friday, bouncing off a six-week low as risk sentiment was boosted after euro zone finance ministers agreed to strengthen the region’s debt firewall, while investors continued to monitor tensions between Western powers and Iran.

On the New York Mercantile Exchange, light sweet crude futures for delivery in May settled at USD102.97 a barrel by close of trade on Friday, dropping 3.53% over the week.

Crude oil futures gained 4.2% in the first quarter, which follows a 25% increase in the fourth quarter of 2011.

Prices fell to as low as USD102.12 a barrel on Thursday, the lowest since February 16 as ongoing speculation Western nations were considering the release of supplies from emergency reserves and fears over the global economic outlook weighed.

The publication in The Financial Times of an opinion piece by Saudi Arabia’s oil minister in which he said the kingdom would be able to increase production to counter high prices also weighed.

But prices regained strength on Friday after euro zone finance ministers agreed to boost the bloc's bailout lending limit to EUR800 billion, in order to combat the threat of sovereign debt contagion to larger economies such as Italy and Spain.

The firewall is to be comprised of EUR500 billion from the European Stability Mechanism, which will come in to effect from July, another EUR200 billion already committed in loans to Greece, Ireland and Portugal and EUR100 billion in bilateral loans and European Union funds.

Meanwhile, concerns over high Spanish borrowing costs eased somewhat after Spain’s government announced EUR27 billion of cuts in the most austere budget in 30 years, amid concerns that the country may be the next to need a bailout.

The news saw risk appetite sharpen, with investors shunning the relative safety of the U.S. dollar. The euro traded close to a four-week high against the dollar, while the pound jumped to a five-month high against the greenback.  

The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, settled at 79.11 by close of trade Friday, the lowest since March 2. On the quarter, the index lost 1.82%.

Dollar-denominated oil futures contracts tend to rise when the dollar falls, as this makes oil cheaper for buyers in other currencies.

Oil prices found further support after the Iran Energy Sector and Proliferation Sanctions Act was introduced to Congress on Thursday.  The bill is the latest in an increasingly aggressive campaign to tighten sanctions aimed at preventing Iran from pursuing its nuclear and missile programs.

Iran’s Foreign Minister Ali Akbar Salehi said Wednesday that renewed nuclear talks between Iran and six world powers are expected to take place on April 13. The six world powers include, the U.S., the U.K., France, Germany, Russia and China. A venue for the talks will be finalized in the coming days.

The stand-off between Iran and Western countries has dominated sentiment in the oil market in recent months.

There are fears that the escalating rift over Tehran's nuclear program could lead to an oil-export halt, a disruption to shipping traffic in the Strait of Hormuz or military conflict, which could send oil prices skyrocketing.

Iran produces about 3.5 million barrels of oil a day, making it the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia.

Elsewhere, on the ICE Futures Exchange, Brent oil futures for May delivery settled at USD122.92 a barrel by close of trade on Friday. The Brent contract lost 1.6% over the week, with the spread between the Brent and the crude contracts standing at USD19.95 a barrel.

Brent prices rallied 14.4% on the quarter, as prices have been boosted by supply disruption fears in Iran, South Sudan and the North Sea.

In the week ahead, investors will be focusing on Monday’s U.S. manufacturing data, as well as Friday’s report on non-farm payrolls.

In the euro zone, market participants will be looking ahead to Wednesday’s European Central Bank policy meeting, as well as data on retail sales and unemployment, amid concerns that the bloc is slipping into a recession.

Meanwhile, oil traders will continue to monitor tensions between Iran and the West and a potential disruption to oil supplies from the region as well the possibility of the release of stockpiles from emergency reserves.