Oil Prices Fall as Economic Recovery Uncertainty Persists

Strategic Insights -

Market uncertainty surrounding the strength of the U.S. economy, particularly in the context of the upcoming Memorial Day holiday, has led to a decline in crude oil futures on the New York Mercantile Exchange. Light, sweet crude for July delivery traded $1.17, or 1.9%, lower at $60.87 a barrel, while Brent crude on the ICE futures exchange traded $1 lower at $59.59 a barrel. The oil futures market remains closely tied to equities, with crude prices falling in sync with European stock indexes.

Key Takeaways:

  • The oil futures market has been closely tied to equities, with crude prices falling in lock-step with European stock indexes.
  • The weak U.S. economy, particularly in the context of the upcoming Memorial Day holiday, has led to a decline in crude oil futures.
  • Gasoline futures have risen sharply this month as inventories of the fuel have fallen, despite the Memorial Day spike in consumption drawing closer.
  • Analysts believe that while a higher unemployment rate may mean fewer Americans can afford vacations this year, relatively cheap prices at the pump will encourage more drivers onto the road.
  • Front-month June reformulated gasoline blendstock (RBOB) traded 0.8% lower at $1.7954 a gallon, while June heating oil traded 2% lower at $1.5109 a gallon.
  • The U.S. Energy Information Administration reported that gasoline inventories fell well below the five-year average for this time of year in the week ended May 15.
  • Analysts at Tudor, Pickering, Holt & Co. believe that U.S. refineries have plenty of extra oil sitting in inventories that could quickly be turned into fuel, making a gasoline shortage unlikely.

Statistics:

  • Crude oil futures traded $1.17 lower at $60.87 per barrel.
  • Brent crude on the ICE futures exchange traded $1 lower at $59.59 per barrel.
  • Gasoline futures rose 0.8% to $1.7954 per gallon.
  • June heating oil traded 2% lower at $1.5109 per gallon.
  • Gasoline inventories fell well below the five-year average for this time of year in the week ended May 15.

Sources:

  • Dow Jones Commodities News via Comtex, May 21, 2009
  • Brian Baskin, Dow Jones Newswires, May 21, 2009
  • Addison Armstrong, Tradition Energy, Stamford, CT
  • Analysts at Tudor, Pickering, Holt & Co., Houston
  • U.S. Energy Information Administration, Week ended May 15, 2009