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Oil markets may struggle to find a clear sense of direction this week as European headline risks may contain upside moves although a robust U.S. third-quarter earnings season, modest

improvements in economic data and tighter supply may continue to feed the rally, CNBC's weekly survey showed.

Six of the week's sample group of 14 respondents said prices would climb this week while six said they would fall. Two respondents in the survey expected prices would remain unchanged.

“Crude prices have recovered extremely well of the lows in the past week mainly due to positive commentary out of Europe and some marginally better than forecast economic data out of the

U.S.,” said Peter Turville-Ince, Director of Compass Global Markets, who has a 'neutral' call for the market this week.

“However, earnings still remain one of the key drivers over the coming weeks and any surprises to the downside could trigger a short-term reversal for equities and crude prices. The real

question, is this move higher really sustainable given the uncertain global outlook?”, he said.

U.S. crude futures may test key resistance at around $90/barrel and $115/barrel for Brent crude before a short-term reversal takes place, Turville-Ince added. “The recent rally in equities

and decline in the U.S. dollar has been on low volume and suggests that many market players are still sitting on the sidelines and waiting for a real reason to get long."

The bottom line, according to Phil Flynn, Vice President and Energy Analyst at PFGBest, is that “oil is living and dying with the twists and turns in this European nightmare. If Europe fails

to come up with a viable plan then the word sinks back into crisis mode and the demand for oil will plummet.”

Nevertheless, Andre Julian, Chief Financial Officer at OpVest - Option Investments, has been bullish crude for the past three weeks and remains bullish though cautious.

“This week it is all about earnings and Europe,” Julian said. “The oil market continues to move in conjunction to the global stock market and may come up to some resistance at $90 for the

WTI if a clear resolution isn’t vocalized from Europe regarding the bailout.”

Oil markets have not traded fully on the fundamentals, Julian added, “due to the continued correlation oil has with the movement in the S&P 500 and the MSCI world index. Until we have

clarity from Europe, we assume this marriage of movement will continue.”

Julian said he’s shifted his outlook to a more neutral-to-bullish stance. That’s ahead of Wednesday’s U.S. oil inventory report and expectations that price gains could be capped by poor

earnings from the U.S. banking and manufacturing sector. “So, we, again, proceed with caution as we tighten up our protection on our oil positions this week.”

Reports of tighter physical supply are bolstering market sentiment but may not prove enough to offset global growth concerns. On Wednesday, the International Energy Agency said European oil

inventories had dropped to their lowest levels in almost nine years after a wave of supply disruptions. Stockpiles in Europe have been hit by the Libyan outages, production disruptions in

the North Sea and sabotage in Nigeria's oil-rich Niger delta.

Weaker-than-expected oil demand growth is being offset by similarly weak non-OPEC supply growth, Deutsche Bank analysts wrote in their Commodity Weekly. “As a result, fundamentals remain

relatively tight and this will encourage further price gains if European policy makers are successful in reducing financial market stress with their plans to recapitalize the European

banking sector.”

The Organization of the Petroleum Exporting Countries’ oil production declined by 130,000 barrels per day to 30 million barrels in September, due mainly to lower volumes from Saudi Arabia

and sabotage-hit Nigeria, a Platts survey of OPEC and oil industry officials and analysts showed last week.

“The main factor to watch in the next few months is just how much Libyan crude comes back on the market, and whether other producers need to make way for it,” said John Kingston, Platts

global director of news. “Long-term, there’s one thing to note: there are a few examples of oil-exporting countries that have gone through enormous change recently – Iran, Iraq, Nigeria and

Venezuela ­– and had their production return to pre-turmoil levels. Libya would be challenging the odds to get back to its original 1.6-million-b/d production level.”

Meanwhile, talk is resurfacing about the re-building of the geo-political risk premium in the oil barrel after an alleged Iranian plot to assassinate Saudi Arabia's ambassador to the U.S.

"Talk of further sanctions and even retribution against Iran for the plot represents the mother of all geopolitical risks for the oil market," said John Kilduff, Founding Partner at Again

Capital. "The permutations of disrupted supplies either due to martial conflict or choice (using oil as a weapon) are myriad. Also, we could see Saudi Arabia markedly ramp up oil production

to lower the price of oil to pressure Iran economically. This is a real wild card for the market."

PFGBest’s Flynn agreed, saying the Iranian revelations are disturbing. “Fears that perhaps this could escalate to some type of military conflict could keep some upward pressure on the Brent

WTI spread.”

However, Kilduff says he’s bearish on oil - and expects U.S. crude futures to find a floor at around $65 - because of the slow pace of growth in the global economy. "Unemployment in the U.S.

and Europe remains the real impediment for economic growth and energy demand for the near-term. We are not seeing improvement."

Meanwhile, "China continues to slow, and pressure on China to allow its currency to rise could further hamper growth as its exports become more expensive as a result," he added.

China GDP data for the third-quarter this Tuesday may show growth in the world's second-largest economy slowed to 9.1 percent from a 9.5 percent in the prior quarter. Fixed-asset investment

and industrial output are also expected to slow moderately. Any sharply negative surprises in the data may undermine the rally in the price of oil..

From a technical perspective, Dhiren Sarin, Chief Technical Strategist, Asia-Pacific at Barclays Capital, said he expected the market to surrender its gains this week. “An ideal topping area

for Brent is between $112.75 and $115,” Sarin said.

“Following a test of this, rollover risks increase. For WTI crude we are more neutral though a break below $82.90 would likely trigger a more bearish tone for a return to $80.”

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