Business | Oil & Gas
Traders see further fall in crude prices
With the Fed signalling an end to interest rate cuts, the dollar gained marginally in forex markets.
- By Dalton H. Garis, Special to Gulf News
- Published: 00:11 May 4, 2008
Abu Dhabi: With the Fed signalling an end to interest rate cuts, the dollar gained marginally in forex markets.
New York oil traders read this as a signal to reduce long holdings, as dollar strengthening usually leads to crude price declines. Nymex tested the $110.00 a barrel range before recovering upon sentiment it had been oversold.
By the end of the week news that Turkey had sent forces into northern Iraq sent crude prices higher, not because of a threat to the producing area, but because traders knew it would be perceived that way, so they bought into it.
Adding to market bullishness in the petroleum sector was a US labour report that showed both a loss of jobs and decreased unemployment. This mix was interpreted as mostly positive, sparking a rally in stocks and crude markets.
Cushing delivery of West Texas Intermediate on Nymex finished Friday at $116.32. On the same day last year, Nymex WTI ended at $61.94.
Traders are betting on crude prices possibly falling further, however. Last week's Commitment of Traders report from the Commodity Futures Trading Commission, the data-gathering and enforcement body for futures and options trading in the US, showed more short positions added and long positions reduced for the week.
With possible dollar and US economy strengthening, both long and short positions were higher from the previous week, indicating slightly more uncertainty in traders' minds about the expected direction of oil prices. For the week long positions were reduced by 5,534 contracts while shorts gained 12,033 among non-commercials: those who accept price risk from commercials.
The lack of any important developments affecting local crude exports to the Far East, their primary buyer, calmed markets after last week's price increases. Local traders judged crudes as probably overpriced against current market fundamentals, and took crude down 3 per cent from last week's closing price. The DME Oman nearby contract finished within pennies of the spot price of $106.75. The Opec basket closed the week at $106.13.
Natural gas markets were little changed for the week upon basically no market-moving news. Nymex natural gas finished the week at $11.05 per million btu, down $0.40 for the week.
- The writer is associate professor of Economics and Petroleum Market Research at The Petroleum Institute, Abu Dhabi.
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