Crude sharply down in New York on labour data

Crude markets have continued to consider current prices at or near a bottom, as reflected by the Commitments of Traders report from the Commodity Futures Trading Commission, which indicated increasing commercial long position purchases.

You would do this if in the market for physical crude and were afraid that prices could rise during the purchasing time period. Such market maintenance probably kept Friday's disastrous US jobs loss figures for December from turning crude future price declines into a deeper sell-off.

As things were, prices dropped just over a modest dollar/barrel on the news. After strong gains throughout the week, the benchmark light sweet West Texas Intermediate on the NYMEX settled at $40.36/bbl.

Local crude markets had already finished trading when New York opened, so today or tomorrow will likely see any residual reaction to the US December jobs report. The Oman DME settled the week at $45.75 (Dh168.05) with the ICE's Brent closing the week at $43.75.

Still unknown is the extent to which the Gulf's Far Eastern customers, especially, China, are able to stimulate local demand increases to offset their collapse in overseas goods sales. With the Chinese New Year festivities imminent the release of possibly enlightening national data will be delayed.

January's US job loss figures might be far worse, however, as Christmas temporary hiring is reversed and winter slowdown adds to cyclical layoffs.

If oil markets have already priced this likelihood in, then prices will not fall much on the news; otherwise, crude prices could fall further as markets comprehend the scope and extent of the deepening world economic situation.

The Bush Administration reset the way the Commerce and Labour departments calculated unemployment statistics, making the published figure lower than previously for the same number of unemployed.

Under the older calculation US unemployment might be now as high as 12 per cent, rather than the 7.2 per cent just released.

The New York natural gas nearby contract closed out the week slightly lower, at $5.54/ per million Btu.

With Russia cutting off Ukrainian gas supplies, European deliveries transshipped through Ukraine are being disrupted. It is too early for either side to be cajoled to the negotiating table by a third party.

But Russia, which supplies 40 per cent of Europe's natural gas, of which 20 per cent of this is routed through Ukraine, may be forcing Europe to hastily develop increasingly stronger ties with their cross-Mediterranean neighbours in North Africa, undermining Russia's own efforts to line up Mena members for a Russian-dominated gas cartel.

The writer is Associate Professor of Economics and Petroleum Market Behaviour at the Petroleum Institute, in Abu Dhabi