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Abu Dhabi: If any doubts existed that psychological factors rule the crude trading pits they were demolished after last week's trading.
The US Energy Information Administration reported an unexpected drawdown in US commercial crude storage of eight million barrels, a datum practically guaranteed to push prices higher. But crude markets sold off on the news, taking Nymex crude from the previous week's high over $135.00 a barrel down to $125.00, a seven per cent reduction, on bullish news.
Markets had already decided the price had run up too much too fast and were selling it off, taking some of the air out of the speculative bubble, as shown by falling open interest amid rising trading volume. WTI on the Nymex settled last week at $127.35. Last year at this time WTI crude sold for $65.09, less than half of the presentprice.
The sevent per cent reduction of the Nymex crude price last week in the face of bullish US supply reduction news was the clearest sign that crude is not trading on the basis of fundamentals - supply and demand analysis - but on the psychologicals affecting a trading arena in the throes of speculative forces.
Local crudes
The Dubai Mercantile Exchange has moved to control speculative forces by periodically increasing margin requirements for its futures contracts. Increasing the funds necessary to control futures contracts reduces the size of non-commercial speculative positions. DME Oman spot crude settled on Thursday at $124.73 and at $121.10 after hours. The previous week it was $128.98 and $125.15 respectively.
The Opec basket ended the week at $124.27. Local markets are following New York's lead for the most part, with no large revaluation changes for the heavy sour crude market seen in the past week.
The writer is an associate professor of Economics and Petroleum Market Research at the Petroleum Institute, Abu Dhabi.
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