Stampede by traders makes US oil prices fall

Abu Dhabi: Traders in the New York Mercantile Exchange's (Nymex) crude pit didn't know what to make of all the information available last week. Markets had been down-trending from poor economic news out of Europe and the US.

The dollar had been strengthening (bearish for dollar-priced crude oil) but then weakened against the euro, reviving fears of further dollar declines.

Hurricane Fay's track had showed an Atlantic Coast direction, from Palm Beach to St. Augustine, Florida, and then into the Carolinas, then changed to favour a westerly path from Fort Myers to Panama City and then into the Gulf of Mexico, which would threaten offshore crude production platforms.

But by Thursday, Fay had weakened and dumped rain over the Florida peninsula.

Finally, Russia seemed to be mostly complying with demands it quit Georgian territory. Some large market-makers took a bullish position, believing crude to have been oversold in light of present supply-chain dangers.

On Thursday the price of crude rose from just over $113.00 a barrel to $121.18 by the end of the day.

On Friday, however, the big traders, not wanting to be long crude over the weekend in a downward trending market, reversed their positions. The crowd followed suit, driving prices lower once again.

The benchmark West Texas Intermediate settled the week at $114.81, down $6.37 from Thursday's close of $121.18.

With no strong price signalling in the Dubai Mercantile Exchange's crude trading arena the DME Oman heavy-sour benchmark tracked New York's price moves with a one-day lag when after-hours trading is included.

The nearby contract closed out the week at $110.50 after reaching $116.70 the previous day. The previous week's close was $112.42 (OSP) and $110.30 in after-hours trading, down from $113.50 two weeks ago.

Asian demand

Asian customers may or may not change their demand for Gulf crudes after the Beijing Olympics are concluded. Oil analysts are waiting for further indications. But China has already signalled its intention to pump more financial capital into markets, continuing its unprecedented infrastructural expansion.

This is bullish (prices expected to move higher) for Gulf crude oil demand.

Asian-bound natural gas supplies are selling at over $20.00 per million Btu in Asian city gate markets. With China signalling continued infrastructural expansion natural gas demand is not likely to decline.

In New York, however, with leading economic indicators in decline, natural gas prices continue to weaken. The Nymex natural gas benchmark closed the week at $7.84 per million Btu, down $0.40 from Thursday's close and down $0.25 from last week's $8.09.

With European gas supplies concentrating intensively on Russian ground movements in Georgia, British markets are pricing natural gas at around twice New York's price.

Russia is moving to recognise the independent status of South Ossetia and Abkh-azia, which would be a further international provocation and would signal Russia's intention to control Caspian Basin petroleum pipelines to Europe.

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