Commodity Corner
Views on commodities and energy
Running after oil in Ramadan
The Muslim holy month of Ramadan has disrupted one of the wackier tasks for OPEC reporters: running around Vienna’s beautiful inner ring road with Saudi Arabia’s Oil Minister Ali al-Naimi, who likes to keep himself and the press corp fit. He often uses the 45 minute walk-cum-jog to give media a background briefing of his view on the oil market as he and the bizarre group of security, aides and reporters trot past the city’s stunning palaces and bemused Viennese on their way to work (or home from a night’s revelling).
The daylight fast for Muslim delegates and ministers means that most meetings are taking place late at night, making an early morning run less practical. Naimi ran on Tuesday afternoon, accompanied only by security. He didn’t go at all on Wednesday morning, much to the chagrin of the reporters on the early shift. The run is sometimes the only chance for media to get Naimi’s insight. It is a blessing and a curse for reporters on the beat, who have to be up at the crack of dawn to take part but are often rewarded with the biggest oil story of the day. Maybe Naimi figures this time there’s no need for a background briefing. With the oil price where it is, he seems relaxed enough to put it all on the record.
Oil Market Contango Widening
The spread between front-month oil futures and contracts for later delivery on the New York Mercantile Exchange (see Fig. 1) has widened dramatically this month. (See Fig. 2)The widening contango frequently portends a rise in inventories. For example, in Fig. 3, it can be seen that when the discount for fronth-month crude to second-month crude widened to near $4 a barrel earlier this year, inventories jumped to 19-year highs. The relationship between inventories and the outright futures price can be seen in Fig. 4.
Correlation Between Oil and Equities Markets
Oil prices have been trading in an unusually strong positive correlation with equities markets over the past few months on hopes that signs of an economic recovery could mean a boost for energy demand.
But with oil and product inventories swelling and little sign of demand improving in the United States and other big developed economies, analysts warn that the linkage may be hard to maintain, especially if U.S. motorists cut back on vacations this summer.
We are not at the economic threshold of return yet where we can handle higher prices in energies. If energies run up the economy will be pushed deeper into recession, perhaps even depression. The energy bubble caused a chain reaction of dissent in over-all financial stability. If energies…specifically oil began moving up at this time we will face economic times like we have not experienced for 70 years.
U.S. Gasoline Demand
U.S. gasoline demand has showed signs of picking up over the past month, edging up 1.6 percent over the past for weeks according to government data. Analysts say lower pump prices have led some Americans to drive more. U.S. demand fell last year for the first time since 1991 as gasoline and crude prices raced to record highs, with further pressure coming later in the year due to the economic crisis.
The above graph shows five years of gasoline consumption in the world’s top consumer, compared with the average price for a gallon of U.S. gasoline.
NYMEX First to Second Month Crude Spread
The spread between the front month and second month oil futures continues to narrow.
The deep spread seen in earlier this year, caused primarily by slumping fuel demand due to the economic crisis, was heightened by the monthly of passive investment funds, especially the giant United States Oil Fund. On Feb. 6, when the fund last rolled its positions from the first to second month futures conracts, it held movre than 20 percent of the front month.
Analysts said that the move by the exchange traded fund to roll its front month positions to the second month over a four day period — rather than on just one day — may lesson the volatility of the shift.
Open Interest in U.S. Crude Oil Futures
Open interest and trading volumes in commodity futures markets have shown some resilience at the start of 2009 despite the dramatic price slides triggered by the economic downturn.
In the fourth quarter of 2008, open interest in U.S. crude oil futures fell to levels not seen since mid-2006 as the global economic crisis hit fuel demand and sent prices tumbling, before rebounding.
this graph raises a question the number of contracts depends on the level of oil prices or on the level of economic activity ?
U.S. Crude Futures Contracts Held By United States Oil Fund in 2008
The United States Oil Fund LP exchange traded fund has built up a large position in crude oil over the past four months, accounting for nearly a quarter of the open interest in the March contract on the NYMEX last week.
Following is a list of the tentative 2009 oil futures contract roll dates for the fund, according to United States Oil Fund’s Website.
With gas & crude prices dissociating, IMO the bet is on refiners who has no or very less crude oil inventory.
Commodities Agenda: Offshore damage and what’s next for diversification?
On the second day of financial services turmoil, CNBC keeps a live update of the crude oil price on lower-right of the screen. An interesting choice for a sentiment indicator, particularly with the benchmark stock indices little changed.
Lehman Brothers, Merrill Lynch and American International Group all are clearing members on major commodity exchanges. All three had been active in getting clients to invest in the rally that made commodities the best performing asset class of the past few years, Barani Krishnan writes in an analysis on the apparent breakdown in relationships in asset classes.
(U.S. crude traded down $3.96 to $91.75 a barrel by 9:55 a.m. EDT in what’s seen as a move to cash. The Reuters-Jefferies CRB Index, a global commodities benchmark, neared eight-month lows on Monday.)
Some other stories we’re watching in commodities today:
- Hurricane Ike did not appear to inflict heavy damage on oil refineries, FEMA told reporters. Nonetheless, several offshore platforms in the Gulf of Mexico — including BP’s big Mad Dog facility — were damaged. It’s a sign a full recovery of oil and natural gas production in the region could be a long way off.
- Farm Foundation Forum on rural health insurance issues.
- Expecting Mexico and Central American coffee exports data and Nicaragua coffee figures
- Venezuelan Oil Minister Ramirez and Chile’s Mining Minister on a visit to sign exploration contracts
And the question for the day… What now for the pension funds and commodities diversification theory?
Commodities Agenda: Offshore damage and what’s next for diversification?
As mentioned in your article-only minor nos of drilling platform are damadged-seeing the crude price movement now crude can go max upto 98/101 and go down till 85/80$, and may try to go further low below US$50/ in comming months while Silver prices are low which may go uptill 14$ come down to 12$ n go till 16-20$ later stage, gold can be up too, but copper can fall till 5800/6100$ first.
you may publish this article with name
R J Manek 9/16/08
Commodities: Oil price forecasts still coming off
Hurricane Ike kept oil prices ahead Monday as the storm barrels toward southern Florida but the wider trend on crude prices is less clear. Credit Suisse cut its third quarter 2008 U.S. crude oil forecast to $120 per barrel and fourth quarter forecast to $110 per barrel.
Here are some of the stories Reuters is watching today in other commodities markets.
- USDA issues crop progress report of year
- Day 1 of Consumer Federation of America, Grocery Manufacturers conference on food prices. Agenda is here
- National Farmers Union annual Fall Fly-In begins. Appearances by USDA officials including Agriculture Deputy Secretary Chuck Conner expected. More
- Mexico suspended meat exports to allow checks to comply with U.S. sanitary regulations (Sep 5)
