The latest American Petroleum Institute (API) Report shows crude oil inventories rose more than expected, leading to a slowing of the recent rises in NYMEX light, sweet crude futures prices.
Figures for the week to 13 March showed that oil stocks rose by 4.66 million barrels to 349.9 million barrels, and when combined with refineries processing less fuel, led to crude oil futures falling back from their recent good run.
While the NYMEX April contract had seen a rise of almost 4% to $49.14, levels not seen since last December, the May ICE Brent crude contract in London also moved up $1.76 to $48.22. It seems the latest API data has helped consolidate $50 as the resistance level for crude oil prices in the near term.
With the main Obama fiscal stimulus promising significant investment in infrastructure, there are hopes that the bottom of the cycle may have been reached. Add to this, the recent comments by Federal Reserve Chairman Ben Bernanke that the US economy could start on its growth path out of recession later in 2009, then the current crude oil price could represent a new consolidation level.
With OPEC looking to ensure that its members comply with already agreed quota cuts, there is semblance of a floor being built around the $48 to $50 mark.
An interesting statistic which could suggest a rise in demand not just for crude oil but commodities in general is that from the US Commerce Department Report which shows that construction work has started on over 500,000 homes.
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Over the weekend, OPEC, the 12-member oil cartel, decided at its meeting in Vienna not to go for further cuts in crude oil production at this time, but rather to concentrate on ensuring first that existing commitments are fully implemented.
On news of the decision NYMEX US light, sweet crude oil was down just under $2 a barrel to $44.28, while in London ICE Brent crude was off $1.83 at $43.10.
The Secretary General of OPEC, Abdullah El Badri suggested that developed countries like the US have by their actions contributed massively to the current global economic slowdown.
Mr El Badri pointed out that while OPEC could cause oil prices to rise by further output cuts, the cartel would accept a relatively cheap oil price in the near term as its contribution to addressing the “mess” caused by the larger world economies.
Another meeting is planned for 28 May to assess whether a further output cut is needed or not.
On balance this was probably the right decision as the world economy is struggling to adjust to the effects of deleveraging the huge asset bubble and trade flows have been hit badly.
We need to keep an eye on the effect of the recent fiscal stimulus packages both in the US and China, and see how the expected increased economic activity translates to a hardening of the crude oil price.
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The price of crude oil fell below $36 today following the release of more negative US economic data. shortly after the end of floor trading in New York, NYMEX US light, sweet crude oil futures for February delivery were down over 9.3 per cent or $3.62 at $35.35 a barrel. Meanwhile, on ICE Futures Europe in London, Brent Crude was down around 10 per cent or $3.97 at $36.40.
The catalyst for these falls in the price of crude oil was the news that US unemployment claims are at a 26 year high, with the unemployment rate at 6.7 per cent. Poor consumer spending figures also weighed on market sentiment, so much so that a further fall off in energy demand is being factored in for the near term.
Just put the latest price of crude oil into perspective for a moment. Back on 11 July, NYMEX crude oil futures were touching an all-time high of $147, and have since fallen around $110 or 75 per cent to just below £36 today.
Following its recent Oran conference, the Organization of the Petroleum Exporting Countries (OPEC) announced output cuts of 2.46 million barrels a day, adding to the earlier 1.5 m b/d agreed at the Vienna meeting in October.
OPEC Secretary General Abdalla El-Badri believes oil prices will approach the cartel’s preferred target of around $75 a barrel by the early part of 2010. This is a level which many Opec members, including Saudi Arabia, believe is necessary to encourage the much needed capacity investment.
Furthermore, figures from the US Energy Information Administration showed that inventories of US crude oil have fallen 3.1 million barrels, while stockpiles of distillates rose, with heating oil up by 1.8 million barrels and gasoline by 3.3 million barrels.
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