Source: Copyright © 2009 Gulfnews.com. All rights reserved.Abu Dhabi: The banking and financing system in the world's largest economy - the swing consumer for the globe - the United States, is in crisis and facing limited nationalisation.
Demand for energy is therefore shrinking, depressing crude prices in New York.
For the second week the New York benchmark West Texas Intermediate - the current index used to assess the health of the US economy - reached an intra-day low below $35.00 (Dh128.56)/bbl, to weigh in at $34.13/bbl this week, and $33.55/bbl the previous week.
Each time markets think all the bad news is on the table more emerges and surprises traders. There is so much fear out there that the marginal value of one more market-influencing negative news event is now just as potent as weeks or months ago, when the news was still novel.
The price of $33.00/bbl has been tested for two weeks running, with strong support shown at that price. On Thursday a double bottom was formed above $34.00/bbl; and Friday's trading showed a double bottom above $36.00/bbl, at which point crude rallied to close at $38.94/bbl.
Traders could now persuade themselves that a nearby low had been put in, even with increasing volatility. The Chicago Board Options Exchange index of crude price volatility, the OVX, rose this week to 74.89, after closing last week at 66.06, only expected after the week's rough trading sessions.
However, commercials were focused on the double bottoms and not the volatility of prices. This week, commercial market hedgers reduced futures positions, in a vote of support for the crude price bottoming out.
Double bottoms are a strong technical sign that prices have reached their lows, as are future position reductions by commercial hedgers. But old rules may not always apply when the economy is in flux as now.
Also of note, US ethanol production - the corn-based fuel distillate - is being slashed, as states roll back support for this costly alternative. This is supporting gasoline prices, which are rising in the United States even as kilometres driven fall. As refiners switch to producing more gasoline for the summer driving season, the doubts about ethanol blending are causing refineries to raise expected cost schedules for the swing to gasoline production.
The Dubai Mercantile Exchange' heavy sour Oman contract fell most of the week on doubts about the robustness of China's ability to replace lost export activity with domestic demand.
But by Friday economic commentators had decided that China's domestic stimulus programme was far superior to what the United States is doing.
With China demand in less doubt, prices recovered slightly by week's end, to close at $41.55/bbl, after testing $40.00/bbl in previous trading sessions.
New York natural gas benchmark closed out the trading week at $4.00/mmbtu, falling from last week's close of $4.45/mmbtu.
Most of the options on futures activity clustered around nearby strike prices around $4.50/mmbtu, indicating some trader confidence for this as a short term price target.
Source: Copyright © 2009 Gulfnews.com. All rights reserved.
Traders could now persuade themselves that a nearby low had been put in, even with increasing volatility. The Chicago Board Options Exchange index of crude price volatility, the OVX, rose this week to 74.89, after closing last week at 66.06, only expected after the week's rough trading sessions.
However, commercials were focused on the double bottoms and not the volatility of prices. This week, commercial market hedgers reduced futures positions, in a vote of support for the crude price bottoming out.
Double bottoms are a strong technical sign that prices have reached their lows, as are future position reductions by commercial hedgers. But old rules may not always apply when the economy is in flux as now.
Also of note, US ethanol production - the corn-based fuel distillate - is being slashed, as states roll back support for this costly alternative. This is supporting gasoline prices, which are rising in the United States even as kilometres driven fall. As refiners switch to producing more gasoline for the summer driving season, the doubts about ethanol blending are causing refineries to raise expected cost schedules for the swing to gasoline production.
The Dubai Mercantile Exchange' heavy sour Oman contract fell most of the week on doubts about the robustness of China's ability to replace lost export activity with domestic demand.
But by Friday economic commentators had decided that China's domestic stimulus programme was far superior to what the United States is doing.
With China demand in less doubt, prices recovered slightly by week's end, to close at $41.55/bbl, after testing $40.00/bbl in previous trading sessions.
New York natural gas benchmark closed out the trading week at $4.00/mmbtu, falling from last week's close of $4.45/mmbtu.
Most of the options on futures activity clustered around nearby strike prices around $4.50/mmbtu, indicating some trader confidence for this as a short term price target.
Source: Copyright © 2009 Gulfnews.com. All rights reserved.