Market looks toward better times ahead

Abu Dhabi: Market sentiment is a peculiar thing: At one time markets shrug off any good news and sell on even a whisper of bullish news.

Or they ignore even serious bad news while bidding crude higher on even restated old bullish news. Last week's strong gains across the board in crude futures and spot prices hint that market sentiment is now looking beyond present conditions and is pricing crude based upon an assumed economic recovery which, even though possibly two years away, is inevitable, and will send crude prices skyward once again.

It was not just that prices gained in crude markets after digesting the current threats to oil's long supply chain from geopolitical developments; rather, it is the strength of those gains.

Good news

If markets are making a price bottom, this is good news for future longs who see their positions appreciating; and for producers and refiners who have worried over the difficulty of maintaining capacity expansion projects if prices continue to head lower unabated. New York, Brent and Oman crude gained almost $10.00 a barrel (Dh36.73) last week. There is a lot of money on the sidelines waiting to come in as soon as it sees the price supported above $40 for at least one week, which would be taken as a firm signal that prices have fallen as far as they are going to for this cycle.

The DME Oman closed the week up $10.26 at $46.01, and just pennies under New York's light sweet at $46.34 on Friday. And ICE Brent led the pack for the week, closing at $47.04.

There was plenty of troubling geopolitical news for crude markets to feast on, including a worsening situation in Gaza. Russia's political situation in its top ranks is seen by many to be in extreme flux; as is Iran's, especially after it slashed domestic fuel subsidies.

Once again, Russia's Gaz-prom demanded Ukraine pay more than it can afford and more than it thinks it owes. Russia has now cut off Ukrainian gas supplies, which places European deliveries transshipped through Ukraine in danger of being siphoned off. Expect gas prices to rise further.

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