Oil fundamentals are still hard to spot

Analysts at the Centre for Global Energy Studies have, like so many before them, tried to figure out why oil prices have risen to such heights this year, despite lacklustre demand leaving all that oil sitting in storage – some of it at sea – not to mention the dreadful refining margins and consequent shut-ins.

As they write:

Many suspect that expectations in the futures market have placed a premium on crude oil that the US refining sector is finding difficult to pass on to its customers. Meanwhile, reports that Shell has chartered four new tankers, in all likelihood to store crude or products, support the view that oil is also a financial asset and that cash-and-carry oil hedges are an attractive option these days because of the contangoed nature of the forward curve.

As they write, oil futures closely followed equity markets in taking a tumble after news of the Dubai debt standstill emerged. That’s before we even get into the dollar.

CGES concludes:

Thus, while factors such as robust oil demand in China and OPEC’s cuts are important considerations, expectations have had a significant role to play and perhaps have the edge at present due to growing doubts about the strength of the global recovery, especially once the stimulus programmes are wound down. The US’ 3Q09 GDP growth rate was revised below 3% last week, while the developments in Dubai have reinforced the views of those who believe the road to recovery will be extremely bumpy. The appearance of a debt crisis, this time in the M. E. Gulf, has cast a shadow over the oil market, but the slowly improving oil fundamentals should ensure that any fall in the oil price is short-lived.

Related links:

RIP oil fundamentals? (FT Alphaville, 30/10/09)
Oil, still fundamentally weak (FT Alphaville, 29/07/09)

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