Demand for crude oil remains under pressure

Published on March 05, 2010 11:45:00 IST

By Walter de Wet
Yesterday’s DOE inventory report showed that demand for products and crude remained under pressure in the US. Crude oil inventories rose a hefty 4.034m bbls, gasoline inventories were up 773K bbls, and while distillates were down 843K bbls, the decline is disappointing, given the cold weather in the US last week.

At the same time, refinery utilization rates remain above 81%, which indicates that product inventory may rise further if demand does not improve. These numbers do not justify higher crude prices — but crude oil rallied anyway.

Given crude’s rally yesterday, it does appear that when CFTC data are released on Friday, it will show speculative activity continues to rise. Friday's data might not show the full extent of this rise because the data captures activity up until the Tuesday in the week it is released. However, the reaction of NYMEX crude yesterday, which rallied despite a bearish DOE inventory report, shows non-commercial longs on NYMEX may be rising fast.

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While a high volume of non-commercial long positions are not a sufficient condition for prices to decline, it does increase the risk of a sharp correction lower if bearish data is released.

API2 for delivery in March declined $1.70 yesterday, while Cal11 was down $1.10. API4 for delivery during the same periods were down $1.00 and $0.45 respectively. Coal out of Newcastle continues to trade at a premium to Richard Bay coal. While there have been supply problems in China and Newcastle, the premium is indicative of healthy demand in Asia.

Courtesy: Standard Bank

Review: http://www.commodityonline.com/futures-trading/technical/Demand-for-crude-oil-remains-under-pressure-14777.html