Business | Oil & Gas
Reduction in US-Iran tensions checks crude's rally
West Texas Intermediate benchmark declined over 10% for the week with futures prices contango for the first time in several weeks.
- By Dalton Garis, Special to Gulf News
- Published: 23:05 July 19, 2008
Abu Dhabi: With crude prices wobbling near the top of the price range, and some movements to reduce Iranian-US tensions, the New York Mercantile Exchange's West Texas Intermediate benchmark fell four days out of five, falling over ten per cent for the week.
At Friday's close WTI stood at $128.83/bbl, down from $145.08/bbl last Friday. Crude delivery for 2010 also fell back to $130.17/bbl.
For the first time in several weeks futures prices are contango once again, with the backs slightly higher than the front months.
Last year crude sold for $75.58/bbl, up from $73.94/bbl 53 weeks ago. It is too early to tell if this week's price reductions will continue an adjustment process in crude prices, back to - say - $95.00-$110.00/bbl.
Such a price move would be associated by traders with the well-known and closely followed Fibonacci reversal value of 30-44 per cent of the recent price top, signalling to traders a solid bottom from which to launch future price gains.
Much also depends on perceptions that Rest-of-World-Iranian tensions are continuing to subside, which will absolutely calm markets and reduce the current $20-$30/bbl risk premium in today's crude prices.
The West Texas Intermediate is very sensitive to any international events that might impact crude deliveries anywhere in the world.
Crude is the most global of global markets: any local crude price is affected by all other prices in the world because of its fungibility and its very long supply chain.
China announced this week that its GDP growth slowed to 10.4 per cent for the first half of 2008, down from an excess of 12per cent previously.
Again, whether this foretells a decline in Asian economic growth that will take hold or is just an isolated case remains to be seen.
A China slowdown makes sense, as evidence is mounting that US consumer spending is being impinged by high gasoline prices, which directly affect China sales in this largest of consumer economies.
Changes in container shipping into Elizabeth, New Jersey, Long Beach, California, and other ports should tell the story.
Oman's heavy-sour benchmark DME contract closed the week at $131.97/bbl (OSP), down from last week's closing price of $140.35.bbl.
Overnight trading saw additional price easing to $126.50/bbl, in line with declines in New York on Friday. Adding to this is the unexpectedly high seasonally adjusted tanker lease rate for GCC crude on the Asian route.
Some might be deciding to hold off new shipments in light of the China economic slowdown to see if tanker lease rates weaken and a more favorable shipping charge could be obtained, putting additional downward pressure on local crude prices.
The Nymex natural gas nearby benchmark contract fell to $10.51/mmbtu, down from $11.94/mmbtu at the end of last week. Most of this move resulted in seasonally adjusted demand and the lack of hurricane activity in the Caribbean and the Gulf of Mexico.
The writer is an associate professor of Economics and Petroleum Market Research at the Petroleum Institute, Abu Dhabi.
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