Commodities | Mar 25 2009
By Andrew Nelson
Crude specific fundamentals, like increasing demand and tighter supply, have been building for a bit now. But while these factors were beginning to provide some pressure for price movements higher, the backdrop of continued macroeconomic weakness, coupled with crumbling equity and commodity markets more than offset these positive forces and continued to pull crude lower. Until lately.
Supply-side constriction coming from OPEC production cuts and non-OPEC supply weakness actually began to overtake the fall in demand, but still crude continued to follow markets lower. However, the recent surge in broader market optimism that has propelled current share market rallies around the world has now also grabbed a hold of crude oil.
The latest in the stream of positive news out of the US is the government has finally provided some detailed plans about how it will help banks remove bad assets from their books. The news not only sparked equity markets on Monday and Tuesday, but both WTI and Brent prices rose in tandem with share markets, closing 5.4% and 4.4% higher, respectively.
At the same time, WTI regained its premium over Brent, settling US33c higher than the latter at US$53.8/bbl. However, notes the commodities team from Barclays Capital, the front-second month spread widened significantly, up to almost US$2. Both WTI Dec-16 and Brent Dec-15 contracts settled above US$80/bbl, the highest in over three months.
Now that investors are actually looking at crude oil fundamentals again, news of strikes by oil workers in different parts of the world also served to push prices higher. For starters, there are troubles in Nigeria that threaten production, with various unions considering the option of going on strike over insecurity in the Niger Delta region. A decision is due soon.
On top of that, workers striking in Petrobras claimed that about 60 kb/d of production had been halted at the Campos Basin. However, company officials at Petrobras said that all units were working at normal capacity through emergency crews. Somebody’s not telling the truth, or at least all of it and what is most likely is that at least some amount of supply is either reduced, or threatened.
Meanwhile, both gasoline and diesel are beginning to firm up on the auspices of a stronger crude oil market. US retail gasoline prices increased by 2.7% week on week to US$1.96/gallon, the second-highest level so far this year. Meanwhile, US diesel prices posted their first weekly gain in almost six months, rising 3.6% to US$2.09/gallon.