Global Investment House – Monthly Oil Bulletin July 2009
Oil price rise came to a halt as hopes of imminent economic recovery were dashed by a string of negative news on the economic front. US President Barrack Obama summed up the sentiments by stating that economic recovery is still far-off. The US unemployment data for June 2009 exceeded consensus estimates spurring worries regarding economic recovery. US crude decreased by 10.5% during the review period (17 June 09-17 July 09) to settle at US$63.56 per barrel mark. US crude has lost 56.2% since it reached an all-time high of US$145.16 per barrel on 14 July, 2008. The US$ strengthened against major currencies in the latter half of the review period as investors took refuge in safe assets at a time of economic uncertainty. US oil stocks also rose in June 2009 indicating weak oil demand. Despite some encouraging signs, there are significant challenges left for the world economy and the recovery process is likely to be a slow one.
US crude oil prices decreased by US$2.62 (3.8%) on 22 June, 2009 as World Bank warned of “unusually uncertain” outlook for the world economy despite the emergence of some positive signs. The World Bank also cut its growth forecast for 2009 for most economies. The constant revisioning of world economic forecasts by major agencies has fuelled confusion and uncertainty regarding the timing and magnitude of recovery thus rendering oil prices extremely volatile. Oil prices stayed in the range of US$59.52-71.49 per barrel during the review period ( 17 Jun 09-17 July 09). In view of this oil price volatility, France and Britain has called for action to curtail oil price volatility as part of a move towards tougher global governance to avoid the problems that were faced before the financial crisis. UK Prime Minister has pledged to talk to OPEC members within the G-8 and G-20 meetings to put an end to oil price speculations and take a step towards greater transparency and regulation.
The Nymex WTI averaged US$69.70 per barrel in the month of June, an increase of around 18.0% over the previous month. Open interest volume averaged 1,172,800 lots, around 181,800 lower than last year. The forward contango decreased in the month of June with the 1st/2nd month spread at US$0.78, a decrease of US$0.15 from the previous month. Contango is the amount by which the future price is higher than the spot price. Crude oil market contango occurs when there is a perception of either of a future supply shortage or a present supply glut.
Daily Price Trend July 09/June 09
Source: OPEC, EIA, Bloomberg, Global Research
In the first full week of the review period US crude oil prices decreased marginally by 0.6% to US$69.16 per barrel. The oil prices slid to US$66.93 before recovering after Nigerian militants attacked Royal Dutch Shell pipeline. During the second week oil prices declined by 3.5% to US$66.73 as government data showed an increase in US stockpiles ahead of their Independence day on 4, July which falls in the peak of the driving season. Oil prices declined further by 10.3% to US59.89 in the third week as doubts over economic recovery prevailed in the backdrop of above-than-expected US unemployment figures and increase in US stockpiles to a 25-year high. Oil prices recovered in the last week by 6.1% as China experienced strong growth of 7.9% in the 2Q 2008 on the back of massive stimulus package of around US$586bn. The US crude oil price settled at US$63.56 at the end of the review period, a decrease of 10.5%. OPEC basket and Kuwait export crude price followed the same pattern decreasing by 8.9% and 7.2% during the review period to settle at US$63.23 and US$65.61 per barrel respectively.
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