Oct 19, 2009
LONDON -- Oil futures traded flat Monday, relinquishing earlier gains which saw Nymex light, sweet crude climb to a new year-high of $79.05 a barrel.
Crude prices lost their bullish impulse momentarily as the market took a pause to reflect on the weak supply and demand backdrop that continues to beset the oil markets, market participants said.
"The market is pretty amazed that we have managed to maintain this support [considering weak fundamentals]," said an oil broker based in London. "That's why people feel reticent to continue buying."
The front-month December Brent contract on London's ICE futures exchange was lower 22 cents at $76.77 a barrel. The front-month November contract on the New York Mercantile Exchange was trading 18 cents lower at $78.35 a barrel.
The ICE's gasoil contract for November delivery was $7.25 higher at $632.50 a metric ton, while Nymex gasoline for November delivery was down 93 points at 197.00 cents a gallon.
Exogenous factors including positive corporate earning results, strong economic data and the decline of the dollar lie behind oil's recent strength -- prices closed higher for the seventh consecutive session Friday.
With economic optimism set to continue driving market sentiment, crude prices may again find themselves in the clutches of external factors, said Dominick Chirichella, analyst at the Energy Management Institute.
"The market sentiment continues to build in the direction of more optimistic that the economic recovery will continue and possibly pick up momentum," he said.
However, many in the market remained skeptical of how long crude prices can maintain their upward march, with market fundamentals presenting little reason for optimism.
"We see no reason why prices should not return to the $65-$75 a barrel bandwidth," said Vienna-based consultancy JBC Energy.
Rising spare capacity at Organization of Petroleum Exporting Countries, depressed refining margins, lackluster demand in Organization of Economic Cooperation and Development nations, a massive middle distillate overhang onshore and growing distillate stockpiles offshore will work to counter-balance optimism springing from non-fundamental drivers, the consultancy said.
Nevertheless some traders remain bullish about price trends in the coming days, pointing to increasing open interest and position volumes on the Nymex light, sweet crude contract.
"Interest and volume has been rising for the last three weeks on the Nymex. There appears to be considerable support behind the current rally," said Stephen Schork, author of The Schork Report.
He expects oil prices to rise to $80 a barrel unless bears put in a strong showing this week.
"It is now or never for the bears," Mr. Schork said.
On the geo-political front, traders will keep a close watch of developments over the Iranian nuclear program, as the Islamic Republic's representatives meet those of France, Russia and the U.S. in a two day meeting at the International Atomic Energy Agency headquarters in Vienna Monday.
"This meeting is seen as a face-saving win-win possibility for all parties, hence its outcome will be important for the level of geopolitical risk that will need to be priced-in for months to come," said Olivier Jakob, managing director of Switzerland-based consultancy Petromatrix.