A dramatic five days for oil markets brought record highs for both Nymex WTI and Brent crude on Monday, but prices ended up falling in each session during the rest of the week.
By the close in New York on Friday, Nymex WTI stood at $53.32 a barrel, or 8.5 per cent off the record high of $58.28 set on Monday. Brent crude fell to $52.89 a barrel, or 8.3 per cent below its peak of $57.65, also set on Monday.
Monday’s spike followed a report by Goldman Sachs the previous week suggesting the oil market had entered what it called a “super spike” cycle which could see crude prices as high as $105 a barrel.
While Federal Reserve chairman Alan Greenspan, who rarely diverts from measured language to describe market affairs, called current oil price action a “frenzy”, few strategists outside of Goldman Sachs gave the idea of a super-spike much credence.
Even after hitting record highs however, both the Nymex and Brent contracts closed Monday’s session lower as thoughts turned towards the weekly US inventory numbers on Wednesday. Given the previous week’s massive 5.4m barrel gain in crude stocks, speculators were looking for anything in the data that supported the bullish view.
What they got could be interpreted both ways and subsequent movements were volatile, but ultimately lower. The deciding factor was the outlook for the supply of petrol and the ability of US refiners to cope with demand, which the government’s Energy Information Administration said was currently running 2.5 per cent higher than at the same time last year. And although Wednesday’s data showed crude inventories rose for the eighth consecutive week, petrol supplies fell for a fifth. This prompted a brief rally in Asian and European trade on Thursday, but by the close, the news on oil refining was proving particularly bearish.
First, the EIA reduced its projection for US petrol demand in the second and third quarters as retail prices at record highs were viewed as likely to trim potential demand growth.
Second, it was noted by some market observers, that with refinery utilisation running at 93.7 per cent – a 13-week high – and with petrol stockpiles still above the five-year average, fears of supply tightness should soon start to diminish as inventories build.
Nymex WTI eventually finished Thursday’s session 3 per cent lower. “Thursday’s fall in oil prices shows just how vulnerable the market is to fund liquidation,” said Kevin Norrish at Barclays Capital.
“US gasoline [petrol] is where a lot of speculative length has been focused, but fundamentals do not look as firm as last year, with demand growing less quickly, inventory levels more comfortable and retail prices much higher,” he added.