US and Dubai markets seek new trading range

Abu Dhabi: After last week's 11 per cent decline, crude markets in both New York and the Dubai Merc's Oman benchmark continued to drift lower.

Markets were seeking a new trading range, beginning with what might be the nearby bottom. Support came at just above the psychologically important price of $120/bbl for WTI and Oman, which is selling for less of a discount to New York's light sweet benchmark than ever before in percentage terms.

At Friday's close the WTI August contract stood at $123.26, down from $128.83 last Friday. Crude delivery for 2010 also fell back to $130.17. Last year crude sold for $77.03 up from $75.58, 53 weeks ago.

With no quick reversal of prices back above $130 economists and market pundits were becoming braver in predicting softer price bands for crude in the near term, while still remaining bullish long term.

Oman's heavy-sour benchmark DME contract closed the week at $124.22 (OSP), with a slight uptick to $124.93 in after-hours trading. This is down from $131.97 (OSP), last week, and from closing price of $140.35 the week before.

If the US economy continues to experience consumer cutbacks in discretionary spending this will hurt China sales to the US to an extent larger than what any additional Japanese and Gulf bound export demand could likely absorb.

But even so, this week's DME Oman crude price decline was unusually modest and showed no indication of price undershooting. The after-hours trading showed a modest uptick in prices as bullish sentiment again began to reassert itself.

Natural gas

This week the US Energy Information Agency also showed a slight build in natural gas inventories, which was not unexpected. The Nymex natural gas nearby benchmark contract closed out the trading week at $9.08/mmbtu, down from $10.51/mmbtu, at the end of last week.

As we approach August, traders begin turning their attention to the fall season and what is expected to be a stormy market period for European natural gas.

Russia is continuing to power into European bound natural gas supplies in order to increase its ability to influence prices and revenues. Presently, no counterforce is registering any capacity to curb this increasing Russian natural gas market power.

- The writer is an associate professor of Economics and Petroleum Market Research at the Petroleum Institute, Abu Dhabi.