Energy Source

Crude oil prices recovered from Monday’s sell off, trading in New York and London above $70 a barrel.

Nymex October West Texas Intermediate rose 37 cents to $70.33 a barrel while ICE October Brent jumped 64 cents to $70.29 a barrel. “Despite the sell-off, WTI’s trading range remains intact,” said Edward Meir, of brokerage MF Global.

The market will focus this week on Opec’s meeting on September 9 in Vienna, although most market participants believe the oil cartel will keep its production levels unchanged. Saudi Arabia, the group’s de facto leader, has signalled in the past that it wants oil prices to hover around $70-$80 a barrel.

Read the full commodities report

Opec dislikes speculators, or that is what the cartel says.

In the words of Abdalla El-Badri, Opec’s secretary general, on Friday speculators are back, not only to crude oil, but into all commodities. “We are not happy… and we do not want to see them to be a factor in prices.”

But at this week’s meeting in Vienna, others at Opec – and Mr El-Badri has also contributed his bit – have done everything possible to stir speculators back to buy crude oil. Ali Naimi, Saudi oil minister, has been extremely upbeat, even venturing to offer speculators a price forecast for the end of the year. “The price is good, the market is in good shape and the recovery is under way, so what else could we want?”

Mr Naimi, traditionally circumspect about prices, went onto to say ahead of the Opec’s meeting that oil prices could surge to $74-$80 by the end of the year. With the most senior Opec official in a rare on the record statement pointing to a potential increase in prices of $20 from pre-Opec’s meeting of $60 a barrel, is easy to understand why speculators are betting heavily into rising oil prices. On Friday, the Opec secretary general joined Mr Naimi, saying that the oil rally is likely to continue, forecasting oil prices by the end of the year at least at $70 a barrel.

Is this a real expectation, or are Opec’s most senior officials just trying to attract speculators by pushing up the price?

We reported on Thursday that at least some within the cartel are welcoming speculators back to the oil market:

Opec delegates in Vienna said Saudi Arabia appeared confident that the flow of money into commodities – as investors worry about a pick-up in inflation because low interest rates or a further weakening of the US dollar – would help to support oil prices. Speculative flows, long an Opec foe, could turn into an ally, they said.

John van Schaik at Petroleum Intelligence Weekly points in the same direction, but going further adding that Opec is deliberately trying to steer market sentiment an attract speculators:

Opec ministers … now banking on oil market speculators to support prices.

Unable to cut more output to bring the market into balance in the short term, Opec, led by Saudi Arabia, is trying to steer market sentiment away from the current supply overhang and bulging stocks and toward expected higher oil demand later this year and the perceived supply crunch.”

Opec’s comments could equal to add petrol to the fire. According to Barclays Capital: “risk appetite is slowly but surely on the rise, and commodities are gaining favour quickly.” The bank adds: “Institutional investors, Sovereign Wealth Funds and asset managers alike are going overweight commodities too.”

Having fallen to some of the lowest levels in two years, hedge fund exposure to commodities has increased sharply over the past few weeks, primarily on the long side. Net length, or speculative bets on higher prices, in US commodity futures markets has increased to the highest level in 10 months, equal to 12 per cent of total positions.

Related story:

Opec bets on recovery to boost price (FT, 28/05/09)

How do you measure Opec’s crude oil supply amid secrecy and dishonesty?

Conrad Gerber, who died on April 25, responded to that question for almost 30 years, providing the oil market with a glimpse of clarity from his Geneva-based Petro-Logistics company.

He made a living from a peculiar characteristic of the oil market: the most reliable data for Opec monthly supply comes not from the cartel member’s energy ministries, but from so-called secondary sources – a network of spies watching, binoculars in hand, the movement of tankers in and out of the world’s ports.

Oil prices are down on Monday as the market responds to Opec’s decision to maintain its production’s official level unchanged. But the downward move is just a blip within the roughly $40-$50 a barrel band in which oil has traded since the beginning of the year. It appears that Opec has not changed a lot in the oil market with its Sunday decision, at least in the short-term.

Oil prices have stabilized at a $40-$50 band

In early trading in London, Nymex April West Texas Intermediate was $2.14 down, to $44.11 a barrel while ICE April Brent was $2.01 lower to $42.92 a barrel.

The drop in prices of about $2 does not change the broad trading range of the year. Since December 31, Brent oil intraday low stands at $39.55 a barrel, while the intraday high was set at $50.53 a barrel. The average price for Brent oil so far this year is $44.62 a barrel.