“We’re seeing some crackspread action as we move toward WTI expiration and it’s all contributing to the bump higher”, said Donald Morton, energy trader for Herbert J. Sims & Co, an investment banking house based in Fairfield, Connecticut.
While a “dovish hike” in interest rates would reduce uncertainty in emerging markets, any adjustment would be a “relatively small story” for crude, Mr Currie said. The high inventories and continued global production will continue to keep the price lower.
Market structure provides mixed signals.
Signs that oil supply remains ample kept prices largely in the doldrums last week, with Nymex crude eking out a 0.11% gain, while Brent crude lost 3.20% or $1.57 per barrel.
Fed chief Janet Yellen has said she expects an increase in USA interest rates by the end of the year but recent turmoil in global markets caused by concerns about China’s economy have complicated policymakers’ decision-making. However, the reason for no rate rise might be even more bearish for commodities as an asset class. China is the demand side of the equation in the world of raw materials. This is at least partially due to the drubbing taken by the price of oil.
Oil services firm Baker Hughes (NYSE:BHI) said in its weekly rig count on Friday that USA oil rigs last week fell by eight to 644, moving lower for the third straight week. “Oman’s oil production is forecast to average 970,000 bpd in 2015, representing growth of 20,000 bpd from the previous year, revised up by 15,000 bpd from the previous monthly oil market report”, OPEC said. “Supplies are fairly ample, and demand is under pressure”.
Banks from Goldman Sachs Group Inc.to Morgan Stanley are forecasting more declines for raw materials.
“We can see the market is stabilizing after the extreme volatility in August when there was an overshoot on the downside”. It would also be a challenge to OPEC’s huge power in the industry. It expected Brent to average $46 a barrel in 2016.
With commodity prices languishing near a 16-year low because of excess supplies, money has been flowing out of funds linked to metals, crops and energy. But even those with significant reserves could see new exploration projects and drilling halted in their countries.
Its argument is validated by US O&G industry executives, who say that the global price for crude would be lower had the USA government lifted the ban on exports of crude from that country. According to the Oil & Gas Journal (OGJ), in the beginning of 2014, Venezuela had almost 298 billion barrels of proved oil reserves, the largest in the world.
Add to that the fact that Asia is in a much better situation than it was just a few years ago, and a rate rise doesn’t look so dramatic after all.