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Weekly UpdatesNigeria's instability has had a negative impact on the oil market since 2003, together with instability in the Middle East and speculation on NYMEX and ICE for paper WTI and Brent having caused world crude oil prices to rise sharply. Nigeria is a major factor to this because of the high quality of its export crude oils, high demand for such grades and a shortage of refining capacity worldwide. A severe global recession from the second half of 2008 caused paper WTI to fall from a peak of $147.27 on July 11 to the $30s in December. But since then paper WTI has risen to the $60s/b.
The NYMEX week on July 31 ended with paper WTI for September settled at $69.45/b, up $2.51 on the July 30 price. September Brent rose $1.59 to $71.70/b. The premium for paper Brent over WTI reflects an unusually weak US demand for gasoline during a traditionally high summer driving season which confirms yet again that the fall in American demand for motor fuels since 2007 has been structural, with major implications for conventional oil's share in the world's biggest energy market.
July prices of paper WTI - down44 cents/b on June - posted their first monthly fall since January (when paper WTT once fell to $32.7), with petroleum inventories piling up. This was seen as a prelude to an extended drop. Speculators continued to pump billions into energy futures. An over-supply of physical crudes and natural gas in the US will cool off any prolonged price increases in the coming months.
Expecting price falls, Iran's OPEC Governor Ali Khatibi on July 31 said OPEC's September ministerial meeting may cut output if paper WTI fell below a $60-70/b range. He pointed to pressure exerted "by some big oil consumerswith the argument that the current economic situation will not bear higher crude oil prices They argue that oil prices must be at a level that helps economic recovery".
Paper WTI on July 29 fell $4.12 to $63.11/b at 15.17 GMT, after dropping more than a dollar on July 28. Paper Brent slid $3.39 to $66.49/b. The EIA then reported a 4.1m- barrel rise in US crude oil stocks in the previous week as imports were up to their highest in six months and refiners slowed processing rates. API figures released late on July 28 showed US crude stocks at 49.8m barrels above levels a year ago.
Weaker US stock markets pressured paper crude oils after data showed a larger-than-expected drop in June orders for long-lasting US manufactured goods, increasing doubts over the pace of American economic recovery. Traders in oil futures had been looking to equity markets for an indication of when the economy will recover and drive up demand for fuel. Analysts predicted commodity markets will continue to be strongly influenced by the stock markets for as long as economic recovery was in doubt. In turn, too rapid a rally on commodities could knock equities lower as a potential threat to incipient economic recovery.
As usual in this cycle, when the US dollar rises, paper oil prices drop and vice-versa. The dollar on July 29 rose broadly as a sell-off in Shanghai stocks and the drop in new orders for long-lasting US manufactured goods revived the safe-haven demand for the greenback. Gold on July 29 fell to a two-week low in Europe and copper slumped to its lowest price in a week as rising risk aversion boosted the dollar, which prompted losses across most commodities. The price of euro zone government debt followed US bonds higher initially but a rebound in European equities dampened the appeal of Bunds and other regional debt, while a record amount of new US debt coming to market kept investors on edge.
A slew of corporate results, including Germany's Bayer and Daimler, encouraged investors in Europe, where chemicals companies were among the biggest gainers. The question was whether European companies would be able to match the performance of their US peers, who had been reporting rock-solid numbers. The FTSEurofirst 300 index of European top shares on July 29 rose 0.9% to close at 910.67 points, just short an eight-month closing high.
The disappointing new orders of US durable goods fuelled fears of ongoing economic weakness, causing US shares to drop, while declining commodity prices hit shares of energy and resource companies. Shares of energy companies on July 29 weighed on the Dow, with Chevron falling 2.3%, while ExxonMobil fell 1.7%. The Dow Jones Industrial Average shed 55.02 points, or 0.61%, to 9,041.70. The Standard & Poor's 500 Index fell 7.49 points, or 0.76%, to 972.13. The Nasdaq Composite Index fell 13.20 points, or 0.67%, to 1,962.31.
A late July 29 sell-off in Shanghai depressed emerging market stocks, while falling commodity prices hampered US equities as investors mulled whether authorities in China would curb lending to stem market excesses. The euro on July 29 fell more than 1% to below $1.41 against the dollar at one point, and the dollar rose more than 1% versus the Swiss franc. Japanese shares gained but stocks in Australia and Hong Kong fell after strong run-ups in the previous two weeks. The MSCI Asia-Pacific index excluding Japan fell 2.6%. In Tokyo, the Nikkei average edged up 0.3% to its highest close in seven weeks.
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