Oil markets start week on softer note

28 Sep 2015 | Author: | No comments yet »

Hedge Funds Primed for Oil Rebound With Increase in Bullish Bets.

Crude-oil futures edged lower in Asian hours Monday in a shaky start to this week’s trading as investors kept a close watch on oil-supply data and key macroeconomic indicators for cues.

Money managers’ long position in West Texas Intermediate crude climbed by 6.1 percent in the week ended Sept. 22, the most since January, according to data from the Commodity Futures Trading Commission. On the New York Mercantile Exchange, light, sweet crude futures for delivery in November CLX5, -1.18% traded at $45.22 a barrel, down $0.49, or 1%, in the Globex electronic session. At the time of writing trading at around US$44.10 per barrel, many countries across the world which are heavily oil import dependent have seen massive reductions in gas prices at the pumps and many industries in these countries have experienced huge savings as a result. Oil prices had ended higher last week — Nymex crude rose for the second consecutive week, up by 1.5%, and Brent crude rose by 2.4% last week, snapping a three-week losing streak.

Although this is partly due to the continued slide in the country’s currency, many answers are needed as to why Jamaican consumers continue to pay so much for gas and other oil extracts. Other Asia-Pacific markets wavered, with the Nikkei 225 Stock Average NIK, -1.32% last down 1%, Australia’s S&P ASX 200 XJO, +1.42% up 0.9% and the Shanghai Composite SHCOMP, +0.18% down 0.2%. Since the high cost of fuel has been historically sighted as a source of low economic growth performances in Jamaica over the past four decades, then something must be done at the policy level to allow the economy to capitalise on these historic lows in global oil prices.

Oil is also pressured by underlying strength in the U.S. dollar since last week after Federal Reserve Chairwoman Janet Yellen argued the case for raising short-term interest rates later this year. In the 1990s and 2000s the United States was a large net energy importer which means that its traditional domestic consumption was woefully inadequate to satisfy its energy-hungry demands, being the world’s largest economy by far. Extensive research over several years brought about the development of new oil extraction techniques known as hydraulic fracturing and horizontal drilling.

He said China’s actual oil demand numbers for August also run counter to some of the recent concerns in the market, as demand has remained robust especially for fuels like gasoline and even rebounded for fuels like diesel. Resulting from this marked and sustained increase in oil production, the US started to rely increasingly less on oil imports and eventually became a net exporter of oil, meaning that they are now able to more than adequately satisfy domestic demand. Nymex reformulated gasoline blendstock for October RBV5, -0.53% — the benchmark gasoline contract — fell 84 points to $1.3875 a gallon, while October diesel traded at $1.5118, 107 points lower.

Crude price gains have been minimal and remain fragile because “there’s just too much physical supply,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. Members of the Organization of Petroleum Exporting Countries have increased production since Saudi Arabia led the group to focus on gaining market share from U.S. shale producers rather than supporting prices.

Iran made progress last week in implementing an accord that will lift sanctions on its exports, threatening to add more oil to the market. “OPEC’s decision to protect market share is continuing to overwhelm all else,” Evans said. “U.S. production may be falling but high OPEC output is outpacing that. On the demand side there has been an economic slowdown in the group of emerging economies known as the BRICS (Brazil, Russia, India, China and South Africa). At the current rate of decline in global crude oil prices there is going to be a point where these large producers, especially US shale oil producers, will be forced to seize operations out of an inability to cover their operating overheads. Against this background, low gas prices are definitely not here to stay, but as to how far oil prices will rebound in future is anybody’s guess at this point.

I am not convinced that current gas prices in Jamaica adequately reflect the price determining fundamentals of demand and supply, but there seems to be the lack of will to correct this asymmetry, even as the public, lacking in the diplomatic militancy of former years, passively stands by and observes.

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