Thursday, July 16, 2009

>Crude weaker as sell off resumes

London - Crude oil futures traded lower in London Thursday as traders returned their focus to immediate weak demand for energy and burgeoning stockpiles of crude and oil products in both the U.S and Europe.

Some market participants hold a very skeptical short-term outlook for products and therefore crude and refining margins. Refinery runs are still too high for the product market to balance and need to come down, said DnB NOR analyst Torbjorn Kjus. "Even if refiners are reluctant to cut runs, as there has been much new capacity added this year, we believe economic run-cuts will force their way into the market."

At 1114 GMT, the front-month August Brent contract on London's ICE futures exchange was down 87 cents at $62.22 a barrel.

The front-month August contract on the New York Mercantile Exchange was trading 56 cents lower at $60.81 a barrel.

The ICE's gasoil contract for August delivery was up $3.25 at $506 a metric ton, while Nymex gasoline for August delivery was down 172 points at 169.09 cents a gallon.

An overall bearish weekly U.S inventories report, which showed days cover for all light products remains really high, weighed on crude prices Thursday. The climbdown from recent 20-year crude stock highs saw a larger than expected crude stock draw in the data but was counterbalanced by higher imports figures.

In the coming week, crude oil futures are expected to quickly resume the downward trend established in early July, although the ICE Brent front-month contract rolls over from August to September Thursday, which could add some volatility to prices.

Peter Beutel, analyst at Cameron Hanover, expects to see prices return to test their recent lows after a short-lived rally this week. But Beutel pointed out that equities are "back in the picture" and a strong performance from stocks this week could bring the index funds back into "every hard asset available."

Looking ahead over a longer period, analysts at Goldman Sachs are confident improving fundamentals will lead to rising commodity prices and returns over 12 months. "Although we share the market's concerns over recent oil demand deterioration, we believe much of this weakness can be attributed to the continuation of massive destocking in U.S. manufacturing that is weighing on U.S. demand today but is expected to slow and eventually reverse as manufacturers deplete inventories," the analysts said.

VTB Capital analyst Andrey Kryuchenkov remains bullish on the market toward the end of the year, anticipating that more weakness for the dollar, improving macroeconomic data and the approaching hurricane season will all be supportive for crude prices.