The New York Mercantile Exchange’s benchmark, the West Texas Intermediate light sweet crude nearby futures contract, continued to decline even as Brent sweet and Gulf heavy sours gained last week.
In today’s economy the US crude market is under bearish pressure as Americans continue to cut back on all consumption – which is 70 per cent of US GDP – even as gasoline prices remain under $2.00 (Dh7.34) a gallon, just half its price seven months ago.
After trading below $40.00 a barrel for most of the day, the closing price on Friday for the WTI March future contract was $40.04.
Meanwhile, local crude prices strengthened, as the Dubai Mercantile Exchange’s nearby Oman heavy-sour March contract was rolled over into the April delivery month.
April is a swing month, when refiners begin changing over to producing more gasoline and other light ends, and reduce heating oil output. The April DME Oman closed the week’s trading at $46.30.
On the Inter-Commodity Exchange, light sweet Brent for March delivery closed the week at $46.21, while the market’s March Mideast sour contract finished trading at $42.53.
These closing prices show slightly stronger nearby demand for Gulf crudes relative to the other main world benchmarks.
Reasons could be the markets’ belief that China is not about to let its economy sink, risking political turmoil; that it will continue to stimulate domestic demand to replace sagging export sales. Since China rules by decree from the top echelon of the government, this belief could be well-founded.
The Chicago Board Options Exchange index of crude price volatility, which last week closed at 77.10, managed to fall to 70.09, after reaching the high 60s earlier. Again, this is a confirmation that crude price volatility is lessening, and that, with most of the economic bad news already revealed, the marginal value of more of the same is losing its power to upset markets.
Last week’s Commitments of Traders data from the US Commodity Futures Trading Commission, which is released on Tuesdays, show that commercial hedgers are adding slightly to their futures positions. This could indicate speculation that crude prices may have hit a nearby high for expected trading ranges, and could fall back slightly this week.
Traders are looking ahead to see the vast increase in natural gas discoveries over the past several years – when they are expected to hit the market and how regional demand could still be depressed at that time.