Commodity Blog

Posts Tagged ‘crude oil’

Crude oil is the raw material used in producing heating oil, gasoline, jet fuel, diesel and other petrochemicals. Three greatest oil producers in the world are the United States, Russia and Saudi Arabia. Crude oil prices directly affect the cost of home heating oil, gasoline, electric power generation and manufacturing. Being the major energy source, oil attracts attention of many investors. Oil price was steadily rising through 2009. Will this trend remain in 2010?

Let’s look at different factor influencing oil prices. As crude oil used in production of unleaded gas and heating oil, prices of these commodities can influence price of the oil. A very cold winter results in higher demand for heating oil, pushing prices for crude oil up. A very active driving season during summer vacations can boost the demand and, as a result, prices for crude oil. Obviously, potential world crises in oil-producing countries may also significantly boost prices of the commodity.

Generally, outlook for oil prices is rather positive. Global economy recovers and rebounding economy requires energy sources, spurring demand for oil. OPEC is expected to decrease its oil production. Production output of non-OPEC countries, while rising, will not offset growing demand for the energy source. Declining dollar forces investors to invest in commodities, like oil, as a hedge measure. Easing credit markets makes it cheaper to store crude oil. All these factors promise bright future for a crude oil.

Telling all this, we should remember that not everybody agree on such optimistic outlook. Some analysts insist that rising supplies, partially because of new technologies giving access to new drilling sites, will catch up demand and will drive oil prices down. Also declining dollar can make prices, measured in U.S. currency, somewhat misleading. Analysts point out that, while dollar prices have surged this year, prices measured in non-U.S. currencies rose not that much and actual oil prices were similarly increased not very much.

So, what price for the black gold can be expected in 2010? There are different opinions on this matter. Technically, long term support level exists at $50 per barrel. Actually, even most pessimistic predictions are not putting oil price in 2010 below $60 level. Another major support and resistance level rests at $75. Most analysts think that the commodity will be traded at this level or somewhat higher in the next year. There are forecasts that put prices as high as $90 in 2010 and even $110 in 2011. But we should remember about another resistance level at $100 which is hard to overcome both from technical and psychological points of view. Take all this factors into account when deciding your trading strategy for the oil but remember to watch market carefully as, in the end, it says what is right and what is wrong.

This video is actually a video answer to the titular question of this post. Many traders are worried that the commodity price have already formed a new bubble and this bubble is about to burst, dragging stocks and other markets down with it. The author of this video doesn’t believe that the bubble is formed and that there is a significant drop ahead. This video points out the supply/demand ratio with the rising global demand and not-so-well rising supply in such a popular commodity as the crude oil.

Aggressive de-leveraging and hedge fund liquidation may have sunk the global commodity market the first time around. But it’s the stagnant global economy that is conspiring to keep it underwater.
When the Reuters/Jefferies CRB Commodity Price Index rebounded 2.3 per cent yesterday, it was a welcome respite in a relentless rout that had knocked the commodity market to its lowest levels in nearly seven years. The bounce ended seven consecutive days of declines for the CRB index, during which time the benchmark had lost 11 per cent, relinquishing whatever modest gains it had mustered from its previous lows of early December.
Analysts say that while they don’t see much more room for most commodities to fall, the latest selloff is a signal that a second wave of worries has overtaken the commodity market. While the credit market crisis and hedge fund redemptions triggered the rapid exodus from commodities over the fall, now the deepening slowdown in physical demand for these products is entrenching the low- price environment.
“[Hedge fund liquidation] is becoming less and less of a factor. But the macro [economic] situation is just killing us,” said Edward Meir, commodity analyst at MF Global in Darien, Conn.
With most economists now seeing the economic slowdown lasting considerably longer than had been anticipated a few months ago, experts generally expect prices for many key commodities to drift sideways for much of this year. They said that while the low prices for some products will discourage production, that will be outweighed by the severe and lingering dearth in demand.
“In the near term, I don’t see a big break in the recent trend,” said Derek Burleton, senior economist at Toronto-Dominion Bank. “Commodity markets are going to remain very focused on the demand side.”
“A more meaningful recovery in commodities may have to wait until 2011.”
Within that dim general view, there are varying degrees of pessimism and hope for the key commodities in the Canadian market:
OIL
The weak demand and high inventories for crude should keep prices in their recent range of roughly $35 (U.S.) to $50 a barrel for much of 2009. However, analysts say oil should get support from the fact that at current price levels, new supplies will slow to a trickle.
“When you’re down at these kinds of [price] levels, the only part of the world where you can bring on new projects is the Middle East,” said Patricia Mohr, commodity market specialist at Bank of Nova Scotia, who predicts that global oil production will actually fall this year.
As a result of this supply slowdown, she said, “once we see some glimmer of hope on the global economy, you’ll see prices come back quite quickly.”
Analysts are looking for prices to average $75 to $80 a barrel in 2010.
GOLD
Gold has bucked the downward trend in commodities, as investors have flocked to it as a safe haven from plunging financial markets and economic and political uncertainties.
While the continued high-risk environment could well keep upward pressure on prices in the short term, and soaring U.S. government debt levels could turn investors away from U.S.-dollar debt and toward gold in the longer term, analysts are concerned that gold’s recent rally may be getting overdone, with gold approaching last year’s record peaks above $1,000 an ounce.
“But the main point is that gold seems to be able to maintain its value,” Ms. Mohr said, which should continue to attract investors to bullion-based exchange-trade funds and to gold equities.
COPPER
Copper is stuck in no-man‘s land.
The price is depressed as a result of sluggish demand, but it’s still high enough to keep most producers profitable, meaning little pressure to slow production.
“The big declines are probably behind us,” Mr. Meir said. However, he said, prices in 2009 “are going to be in a sideways pattern.”
However, Ms. Mohr said copper should benefit from government stimulus efforts aimed at expanding electricity infrastructure, particularly in China.
ALUMINUM
Unlike copper, analysts said aluminum prices have fallen considerably below most producers’ cash costs, which is triggering production cuts and killing new mining projects in their tracks.
“In aluminum, everyone is in the red. Everyone is struggling,” Mr. Meir said.
That suggests that even a modest recovery in demand could put upward pressure on what could become a very tight market on the supply side. Analysts said the situation isn’t that different in other base metals, such as zinc and nickel.
“I think all of them are oversold,” said Bart Melek, global commodity strategist at BMO Nesbitt Burns.
CANOLA
Ms. Mohr believes canola is poised to be a strong performer this year.
It’s an attractive product for Canadian farmers because of its traditionally strong profit margins, and could benefit from the threat of drought in some of China’s key canola-growing regions. She said China has already been stockpiling canola in the past months.
TD’s Mr. Burleton thinks agricultural commodities in general look promising. He added that drought worries in several parts of the world could also bode well for grain prices.

Gold N.Y. Spot $ 854.50
Silver N.Y. Spot $ 11.09
Lead LME Cash $ 0.5194
Copper LME Cash $ 1.4379
Zinc LME Cash $ 0.5577
Nickel LME Spot $ 5.19
Aluminum LME Spot $ 0.6877
Platinum N.Y. Spot $ 0977.00
Palladium N.Y Spot $ 199.00
Oil WTI Cushing $ 040.90
Natural Gas (Henry Hub)($/MMBtu) $05.89

USD-AUD $ 1.4112
AUD-USD $ 0.7086
CAD-USD $ 0.8437
USD-CAD $ 1.1853
EUR-USD $ 1.3730

Gold N.Y. Spot $ 0894.45
Silver N.Y. Spot $ 16.86
Lead LME Cash $ 0.8868
Copper LME Cash $ 3.6193
Zinc LME Cash $ 0.8775
Nickel LME Spot $ 09.80
Aluminum LME Spot $ 1.2964
Platinum N.Y. Spot $ 2024.50
Palladium N.Y Spot $ 435.00
Oil WTI Cushing $ 126.80
Natural Gas (Henry Hub)($/MMBtu) $11.45

USD-AUD $ 1.0469
AUD-USD $ 0.9552
CAD-USD $ 1.0058
USD-CAD $ 0.9942
EUR-USD $ 1.5532

With oil prices at record levels we have moved it to the top of the leader board…

Oil WTI Cushing $ 121.60
Gold N.Y. Spot $ 0881.00
Silver N.Y. Spot $ 16.94
Lead LME Cash $ 1.1703
Copper LME Cash $ 3.9091
Zinc LME Cash $ 1.0038
Nickel LME Spot $ 12.84
Aluminum LME Spot $ 1.3066
Platinum N.Y. Spot $ 1924.00
Palladium N.Y Spot $ 421.00
Natural Gas (Henry Hub)($/MMBtu) $10.76

USD-AUD $ 1.0553
AUD-USD $ 0.9476
CAD-USD $ 0.9877
USD-CAD $ 1.0125
EUR-USD $ 1.5552

Even with demand slackening, gas prices have continued to rise.

Filling up at the pump has become such a pain in the pocketbook that for the first time ever, gasoline consumption in the U.S. has stopped increasing. But even though America’s consumption has been virtually flat for the past five years, prices in that same period have nearly doubled, with crude oil recently hitting record highs.

While commodity prices typically decline along with demand, gas has defied these market fundamentals. But the forces behind ever-escalating prices at the pump aren’t a mystery once you look at the big picture — and the good news is relief may be just down the road.

Petro-Canada, prominent in global oil and gas production and gasoline retailing in Canada, says its fourth-quarter profit jumped 36 per cent to $522-million, from a year-earlier $384-million.
Net earnings in the quarter ended Dec. 31 amounted to $1.08 a share, compared with 77 cents per share a year ago, the Calgary-based company reported Thursday.
Analysts’ consensus forecast was for earnings of $1.32 a share, before one-time items, according to Thomson Financial.
“The fourth quarter was a solid quarter, capping off an excellent year,” CEO Ron Brenneman said in a release. “We successfully followed through on our two business priorities; exceeding our upstream production targets and not only advancing five major projects, but adding two more.
“In 2008, we will bring on the Edmonton refinery conversion project — a significant contributor to future cash flows. We will also advance our six other growth projects, making final investment decisions on Fort Hills, the Syria Ebla gas and Montreal coker projects.”
The company credited higher operating earnings and gains on foreign currency translation of long-term debt, partly offset by a change in the value of the Buzzard derivative contracts in the North Sea.
Net earnings from continuing operations for the full year totalled $2.7-billion or $5.59 a share, compared with $1.6-billion or $3.15 per share in 2006.
During the fourth quarter, the company entered into derivative contracts to close out the hedged portion of its Buzzard production from Jan. 1, 2008, to Dec. 31, 2010, resulting in an after-tax charge of $120-million.
The North American natural gas business unit recorded a charge of $97 million after tax for the impairment of coal-bed methane assets in the U.S. Rockies “due to probable reserves reductions, combined with lower prices.”
In 2008, the firm plans to drill up to 17 wells focused in the North Sea, offshore Trinidad and Tobago, Libya and in the Northwest Territories and Alaska.
Work is under way for the drilling of the three North of 60 wells in the first quarter of 2008. In the North Sea, Petro-Canada and its partners plan to drill up to six wells.