Oil Stuck, Clamped-in and Range-Bound...for Now
Resource Investor - Energy - Oil Stuck, Clamped-in and Range-Bound...for Now
By Adam Porter
29 Nov 2005 at 10:38 AM EST
PARIS (ResourceInvestor.com) -- Oil prices have been confounding analysts for a few weeks. Highs were set in August and September as the NYMEX crude price barged up to $70.85. As a result many felt the fourth quarter of 2005 was going to prove a definitive moment in oil pricing. It has not.
Instead aggressive short selling has set the trend in the market place. Profit-taking has been the main driving factor and has been helped out by unseasonable warm weather. This drove the price down from its previous range around $64 into five month lows at around $57.
A record number of short positions are still in effect on the price of crude. End-of-year profits (and of course individuals bonuses which cannot be discounted) have motivated short puts. As well as this OPEC have been offering bearish news to the market place. Firstly Saudi Arabian oil minister Ali Al-Naimi came out with an unusually worded statement.
?As I have said, today the market is beautiful. It?s in balance and inventories are at a very comfortable level,? he said. Yes, ?beautiful.?
Then OPEC also offered up news yesterday that they would look to extend the range of their inventory cover to 56 days from 52 days currently. Although the news release said that this was the ?target? for OPEC, the idea that OPEC are looking to create new stockpiles of oil is also a price depressant.
U.S. stockpiles have also been amazingly well managed, in the face of the downtime to refineries caused by the dual hurricanes. Of the total build in U.S. inventories last week, of 1.6 million barrels of crude and distillates, 1.3 million barrels of that was in heating fuels alone. Much of this was the timely release of stocks from Europe, shipped to the U.S.
As a result heating fuel inventories in the U.S. are above their normal range, even above those of last year. The distillate stocks have also been growing over the past two weeks Show in both recent sets of U.S. Energy Information Administration (EIA) figures. This is a great comfort to those who wish to sell the market short. As it appears there is plenty of cover for any harsh weather outcomes in the United States.
Mike Wittner global head of energy market research from Calyon Bank in London said, ?In order for absolute prices to break out of the range to the upside, the markets will need to see several weeks of cold weather, cold enough to lift distillate
demand and cold enough to tighten distillate stocks. This has not happened so far. The underlying driver to the market for the last two years has been demand, and it is no different now. In the physical markets, demand for distillates is soft, and this is the only product category that matters in the winter.?
However there are signs that bullish pressure, already mentioned on Resource Investor, is starting to build. The idea of American ?demand destruction? caused by high prices appears to be a thing of the past.
Chinese demand figures felt by many in the mass media to be flat in 2005 have started to pick up. Again, as already mentioned by Resource Investor.
The result, ignored by most, has been a change in the market short positions we have already mentioned. Short positions in the market reached a record of 162,000 lots. This meant the high point was reached when speculative shorts puts outweighed long puts by 43,800. Historically this figure is an enormous one for the market to cope with, without massive selling. That is what happened.
But CFTC data, delayed by the Thanksgiving holiday until Monday, has shown that the move to cover those short positions may have begun. The weekly change in overall speculative short positions versus long positions fell from 43,800 to 28,000.
Kevin Norrish of Barclays Capital is keen to point out that the ?outstanding short position across crude and products is still a large one by historical standards.?
But he also admitted, ?the reaction to recent mild weather has been overdone. The theory of demand destruction has been seriously undermined by recent U.S. data revisions which show only very small reductions in key U.S. product demand and...China is showing signs of stronger demand again.?
Continued bearish pressure could see oil test new resistance towards low $50 oil before the year end. But even so the market may be approaching a turning point that will take prices higher, once again.
By Adam Porter
29 Nov 2005 at 10:38 AM EST
PARIS (ResourceInvestor.com) -- Oil prices have been confounding analysts for a few weeks. Highs were set in August and September as the NYMEX crude price barged up to $70.85. As a result many felt the fourth quarter of 2005 was going to prove a definitive moment in oil pricing. It has not.
Instead aggressive short selling has set the trend in the market place. Profit-taking has been the main driving factor and has been helped out by unseasonable warm weather. This drove the price down from its previous range around $64 into five month lows at around $57.
A record number of short positions are still in effect on the price of crude. End-of-year profits (and of course individuals bonuses which cannot be discounted) have motivated short puts. As well as this OPEC have been offering bearish news to the market place. Firstly Saudi Arabian oil minister Ali Al-Naimi came out with an unusually worded statement.
?As I have said, today the market is beautiful. It?s in balance and inventories are at a very comfortable level,? he said. Yes, ?beautiful.?
Then OPEC also offered up news yesterday that they would look to extend the range of their inventory cover to 56 days from 52 days currently. Although the news release said that this was the ?target? for OPEC, the idea that OPEC are looking to create new stockpiles of oil is also a price depressant.
U.S. stockpiles have also been amazingly well managed, in the face of the downtime to refineries caused by the dual hurricanes. Of the total build in U.S. inventories last week, of 1.6 million barrels of crude and distillates, 1.3 million barrels of that was in heating fuels alone. Much of this was the timely release of stocks from Europe, shipped to the U.S.
As a result heating fuel inventories in the U.S. are above their normal range, even above those of last year. The distillate stocks have also been growing over the past two weeks Show in both recent sets of U.S. Energy Information Administration (EIA) figures. This is a great comfort to those who wish to sell the market short. As it appears there is plenty of cover for any harsh weather outcomes in the United States.
Mike Wittner global head of energy market research from Calyon Bank in London said, ?In order for absolute prices to break out of the range to the upside, the markets will need to see several weeks of cold weather, cold enough to lift distillate
demand and cold enough to tighten distillate stocks. This has not happened so far. The underlying driver to the market for the last two years has been demand, and it is no different now. In the physical markets, demand for distillates is soft, and this is the only product category that matters in the winter.?
However there are signs that bullish pressure, already mentioned on Resource Investor, is starting to build. The idea of American ?demand destruction? caused by high prices appears to be a thing of the past.
Chinese demand figures felt by many in the mass media to be flat in 2005 have started to pick up. Again, as already mentioned by Resource Investor.
The result, ignored by most, has been a change in the market short positions we have already mentioned. Short positions in the market reached a record of 162,000 lots. This meant the high point was reached when speculative shorts puts outweighed long puts by 43,800. Historically this figure is an enormous one for the market to cope with, without massive selling. That is what happened.
But CFTC data, delayed by the Thanksgiving holiday until Monday, has shown that the move to cover those short positions may have begun. The weekly change in overall speculative short positions versus long positions fell from 43,800 to 28,000.
Kevin Norrish of Barclays Capital is keen to point out that the ?outstanding short position across crude and products is still a large one by historical standards.?
But he also admitted, ?the reaction to recent mild weather has been overdone. The theory of demand destruction has been seriously undermined by recent U.S. data revisions which show only very small reductions in key U.S. product demand and...China is showing signs of stronger demand again.?
Continued bearish pressure could see oil test new resistance towards low $50 oil before the year end. But even so the market may be approaching a turning point that will take prices higher, once again.
posted by Marcel at 1:38 PM
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