Business | Oil & Gas
April is usually the 'swing month' for crude prices to fall
A slew of bad economic news failed to push West Texas Intermediate (WTI) below the psychologically important $100 a barrel price level.
- By Dalton H. Garis, Special to Gulf News
- Published: 00:31 April 6, 2008
Abu Dhabi: A slew of bad economic news failed to push West Texas Intermediate (WTI) below the psychologically important $100 a barrel price level. Light sweet crude on the New York Mercantile Exchange closed the week at $106.23, up $2.40 in after-hour settlements. ICE Brent came in at 104.80, up $2.18.
US joblessness increased by an unexpected 80,000 claims and pushed unemployment (joblessness caused exclusively by an economic slowdown) to an unadjusted 5.1 per cent, up from 4.8 per cent. The Federal Reserve confirmed in Congressional hearings that the US might have slipped into a recession in January of this year.
Added to this was lacklustre US refinery utilisation in the world's largest oil consuming nation, as netback margins shrank and many units took the opportunity to perform annual maintenance. This alone should have pressured crude prices lower, but did not. The dollar - the currency used to price the world's commodities - also traded in a narrow range against the Japanese yen, the British pound and the euro.
April is the usual time for crude prices to fall. It is the "swing" month in the US as refineries change over from maximising middle distillates to tune up for increased gasoline production.
But prices are so far not falling, even with additional burdens of bad economic news. If this trend holds it could signal higher prices for crude later in the year, US recession or not.
Markets are still jittery, however, with Tuesday's Commodity Futures Trading Commission's Commitments of Traders report showing a still large volume of options on futures on both long and short sides.
Benchmark signalling and price leadership might finally be working according to what kind of crudes the world mostly utilises-heavy sours. In that case we could be witnessing the beginning of DME Oman and the Opec market basket establishing the primary crude price, with the light sweets of WTI and Brent being priced off Oman and the Opec basket.
DME Oman finished on Thursday at $97.25, with the Opec basket finishing at $98.63 up $2.16. Nymex natural gas was lower on greater-than-expected US inventory reports.
The writer is associate professor of Economics and Petroleum Market Research at The Petroleum Institute, Abu Dhabi.
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