Oil benchmarks move sideways

With no market-moving news to speak of, oil prices were little changed last week, with Brent, WTI, and DME Oman benchmarks marginally changed. Heating oil, which measures the pace of recovery in the real economy, closed identically to last week's price.

With crude oil stockpiles in the US at 20-year highs, it is an indication of the market's new neutral-to-upward bias that prices did not fall significantly this week. However, commercial petroleum firms were taking no chances, maintaining slight futures positions to hedge against negative price movements.

The New York Mercantile Exchange's benchmark light sweet West Texas Intermediate closed the week at $50.33 per barrel, down slightly from last week's $52.24 per barrel. The InterCommodity Exchange's benchmark Brent nearby contract closed the week at $53.31 per barrel, little changed from last week's $54.06.

The local Dubai Mercantile Exchange's Oman heavy sour finished the week at $51.55 per barrel marginally down from last week's $52.19 per barrel. New York market heating oil closed at $1.42 per gallon, identical to last week's closing price.

There was some news, however. China refinery demand is increasing, signalling that the world's third largest economy's massive stimulus plan is taking hold. Premier Wen Jiabao stated last week that China seeks to balance its economy, basing more on domestic consumer spending and less on export earnings, to offset the boom-bust cycling that at US-driven world economy engenders.

Premier Wen tempered first quarter positive GDP results, in an address to China's state council, by pointing out that the new credit stimulus will likely create some bad loans which will need cleaning up later; that there is much more to do. This may have dampened market enthusiasm for China refinery demand increases and kept a lid on crude prices, at least for the Gulf.

The Commodity Futures Trading Commission's Commitment of Traders report last week shows commercial hedgers with small futures positions protecting them from price falls, indicating that commercials have some concern that April and May could see some petroleum price declines.

With more directional changes in crude prices Friday's Commodity Board Options Exchange's OVX crude price volatility index gained for the week, ending at 69.45, significantly higher than the previous Friday's 54.97 close.

Meanwhile, Wall Street's equity indices have been settling down significantly, with the VIX now in at 35.79. The standing correlation between equity gains and crude oil price increases is now far weaker than before, taking away one more market signal crude traders had used to gauge likely crude price movements.

Markets are unsure whether the US or China will be the first to emerge from the world's economic doldrums. It matters for Gulf exporters since most Gulf crudes are sold to the Far East.

- Dalton Garis is Associate Professor of Economics and petroleum market behaviour at the Petroleum Institute, in Abu Dhabi.