Crude Oil Prices Out Of Sync With Fundamentals

Oil 1 BNSWTI crude oil gained 8 cents on Friday to $97.13 a barrel, ending the quarter down 10 cents but up $5.31 from the close of 2012. On Friday, oil came under pressure from the stronger dollar as investors resumed pricing in the possibility that the Federal Reserve will begin to pare back its bond-buying program as soon as its September policy meeting. This morning oil is tumbling to trade at 96.18 as traders look closely at the fundamentals of supply and demand.

There is nothing including geopolitical tensions to support oil at this price, as speculators continue to push prices upwards on the back of positive economic data from the US. The other side of this argument is the Fed’s reduction in its asset purchases. Neither of these arguments supports prices above the 97.00 price level.

Positive data from Japan, which indicates that “Abeconomic” is working well, turning around the economic situation, with the Japanese Tankan release this morning reporting above expectations and last week’s long list of data releases showing success due to the aggressive monetary stimulus program of the Bank of Japan, might support the BoJ to add additional stimulus, which could support oil prices. On the other hand is data from China over the past month which shows a slowdown in the recovery of the world’s number two user of crude oil. Last week the government revised downward 2013 growth estimates to 7.5% from 7.7%. This morning Chinese PMI data was mixed, with the HSBC private report showed a decline in manufacturing and also reported below the 50 divider line, while the official government release reported slightly higher above the 50 number, but traders pay more attention to the HSBC report. New orders from abroad shrank in June for the third month in a row and at a rate that was the fastest since September as foreign clients, particularly those in Europe and the United States, cut demand for Chinese goods even after China’s producers passed on savings from lower material costs and discounted charges, HSBC said.

Crude oil futures are likely to witness some downward correction due to profit booking in the coming week after trading mostly firm in last few sessions, Benchmark crude oil contract on the New York Mercantile Exchange rose over 4% during the week to a high of $97.82 per barrel Friday. NYMEX oil prices gained due to release of upbeat economic data from the US that boosted hopes regarding improved oil demand, US consumer spending in May grew 0.3%, in line with market expectation. Besides, US weekly jobless claims fell by 9,000 to 346,000 in week ended Jun 22, while pending home sales hit a six-year high in May. Economic data from the US is crucial for the market, as it is the world’s major oil consuming nation. Other fundamentals for crude oil are not very supportive, as the weekly oil inventory report by the US Energy Information Administration showed a sharp rise in petrol stocks in the week ended Jun 21.

Natural gas continued to tumble as the month drew to a close, but rebounded a few pip on Monday morning, to trade at 3.597 well off its high just a month ago at the $4.40 level. Natural gas futures are continuously moving higher and in a swing pattern, forming higher‐highs and higher lows. But in last couple of months prices have just consolidated and indicated signs on correction. As summer sets in, the weather has not been hot enough to send residential use higher but inventories remain at their peak leaving natural gas demand lower and pulling down prices.


Leave a Reply

Your email address will not be published. Required fields are marked *