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Abu Dhabi: Last week saw Nymex crude hit new all-time highs before retreating, only to end the week back up near its high. Natural gas contracts tracked crude's price increases on fundamentals.
Crude market prices took off at the beginning of the week on the basis of almost no significant news, attracting speculative money from the bond and stock markets. By mid-week the price increases took on a life of their own: Rising prices attracted more buyers who bought, thus pushing prices even higher.
The bubbling stopped just under $120 a barrel for WTI on the Nymex. Buyers then reasoned crude was too high and began to unload, forcing prices to retreat to a relatively lower $116.00+, only to take off again on rumours of an altercation between a US ship and Iranian speedboats in the Gulf; and of fresh incidents in the Niger Delta affecting international oil company output. BP also announced pumping reductions in the North Sea.
Local crude markets have yet to reflect their reaction to the Gulf incident as it came on Friday when regional markets are closed.
Thursday's DME Oman closed at $109.77 and lost a dollar during after-hours trading. The Opec basket closed the week at $110.63.
This is an unusual April. Even with refinery utilisation in the US at the 85 per cent range and with crude in storage deemed adequate, crude prices are still robust and show little inclination to fall.
Crude markets are biased on the bullish side, needing significant bearish news to force any real selling or price declines.
Natural gas markets gained on the back of crude price advances. Nymex Henry Hub nearby closed at $10.96 per million btu, with New York City Gate closing at $11.45.
With crude prices advancing natural gas, which is its substitute in many fixed energy applications, will likely close the price differential gap. Presently one million btu of oil costs $20 while one million btu of natural gas cost around $11 on US markets, which are characterised as underpricing the product in rest-of-world terms. But for this to happen more must be done to increase LNG infrastructural capacity worldwide.
The writer is associate professor of Economics and Petroleum Market Research at The Petroleum Institute, Abu Dhabi.
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