Choppy trading week for crude and heating oil

26 November 2009

It has been a volatile week in crude and heating oil trading, with strong gains and sharp losses witnessed through to Thursday morning (November 26th).

Crude contracts trading on the New York Mercantile Exchange (Nymex) - which are considered the global benchmark crude prices - started out strongly on Monday as the US dollar continued to fall against its major competitors.

In recent months, crude and heating oil prices have tended to rise on the back of weakness in the dollar as this makes commodities more attractive to foreign investors, while US traders also use hard assets such as oil and gold as a hedge against inflation.

This has been one of the main contributing factors to the rise in oil prices in recent months, with prices more than doubling since the beginning of the year, when Nymex oil futures traded at $36 a barrel.

Although the commodity has breached the $80-a-barrel temporarily, this week oil began trading at $78 a barrel and wobbled around this level over the following few days.

By the close of trading on Tuesday, both crude and heating oil prices had wiped out the strong start to the week and had plunged to $76 a barrel. Meanwhile, wholesale heating oil prices also fell, moving further away from the $2-a-gallon mark.

The losses were broadly attributed to weak economic reports from the US which raised questions about the pace of recovery of the world's largest economy, while figures published by the American Petroleum Institute (API) showed a persistent shortfall in demand for crude and petroleum.

The API produces weekly figures mapping the rise or fall in crude and gasoline inventories and figures for last week showed an unexpectedly large decline in oil stocks, suggesting sluggish sales of the fuel across industrial, commercial and domestic sectors.

Although these figures weighed heavily on commodities trading on Tuesday, losses were pared in both heating oil and crude during trading the next day as the weakened dollar once more encouraged a move to hard assets.

For oil customers here in the UK and Ireland, it will take some time for movements in wholesale crude and heating oil prices to be factored in as domestic prices are set using longer term price projections that factor in supply and delivery costs and other similar expenses.

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