Oil Prices Tied to Stocks, Sinking Demand and Surging Supplies Weigh on Market

Strategic Insights -

Crude oil prices ended slightly higher on Thursday, despite a mixed bag of economic data, as the sector continues to grapple with sinking demand and surging supplies. The New York Mercantile Exchange saw light, sweet crude for June delivery settle 15 cents higher, or 0.3%, at $51.15 a barrel. Meanwhile, June Brent crude on the ICE futures exchange settled 2 cents higher at $50.80 a barrel. The market's tepid response to the improved economic forecast from the Federal Reserve the previous day suggests that investors are increasingly looking to commodities like oil for signals about future economic activity.

Key Takeaways:

  • The filing for bankruptcy protection by Chrysler contrasted with the improved economic forecast from the Federal Reserve, leading to a mixed response in the oil market.
  • U.S. oil demand was even lower than initially thought in February, with the Energy Information Administration cutting its estimate for the month by 4% or 780,000 barrels a day.
  • The latest data points to sinking demand and surging supplies, with oil inventories at an 18-year high, leading analysts to predict that oil prices will eventually be dragged down by fundamentals.
  • The swine flu outbreak adds an extra layer of uncertainty to the market, potentially curtailing travel and postponing an economic recovery.
  • Front-month May reformulated gasoline blendstock settled 2.58 cents higher at $1.4742 a gallon, while June heating oil settled 1.44 cents lower at $1.3147 a gallon.
  • The Organization of Petroleum Exporting Countries (OPEC) has been holding down exports, which could potentially meet peak summer gasoline demand.

Statistics:

  • U.S. oil demand was 4% lower than initially thought in February, equivalent to 780,000 barrels a day.
  • Oil inventories are at an 18-year high.
  • Oil prices have risen from under $50 a barrel on Tuesday to nearly $52 early Thursday.
  • June Brent crude on the ICE futures exchange settled 2 cents higher at $50.80 a barrel.
  • June heating oil settled 1.44 cents, or 1.1%, lower at $1.3147 a gallon.

Sources:

  • Dow Jones Commodities News via Comtex (Apr 30, 2009)
  • U.S. Energy Information Administration (release cited in Dow Jones Commodities News)
  • Walter Zimmermann, analyst with ICAP/United Energy in Jersey City, N.J.
  • Zachary Oxman, managing director of TrendMax Futures in Encinitas, Calif.