Crude, heating oil prices steady as week winds down

21 January 2010

Written by Kim Bardsley

Crude and heating oil prices have held relatively steady during trading this week, recovering from early flutters to post marginal gains this morning (January 21st).

Both commodities have languished in recent sessions as the freezing weather conditions in much of Europe and North America have eased, thereby bringing demand for both fuels down to levels more typical of the winter season.

However, this morning support for crude came with the announcement that China probably overtook Japan to become the world's second largest economy last year, although updated figures for the latter country will need to be digested before China can claim the position.

China posted strong annual gross domestic product figures today, with total growth for the year standing at 10.7 per cent, but the bullish sentiment these stats inspired was partially offset by a World Bank report which reiterated concerns about the fragility of global recovery, sending jitters through the markets.

Speaking to Reuters, Tony Nunan, a risk manager with Tokyo-based Mitsubishi Corp, said China could not be relied upon to drive a global return to growth.

"Because it is a command-style economy, things can change quickly. What was bullish could turn bearish if China puts on the brakes," he said.

This was a lesson learnt last week with the announcement that Chinese authorities had impelled its largest banks to put a halt to lending for the rest of the month to curb speculative growth.

As European markets opened, the headline crude futures contract was marginally above yesterday's settle price of $77.74 (£48, €55) a barrel, while heating oil were also holding around the $2.02-a-gallon mark.

However, speaking to Bloomberg, Victor Shum, a senior principal at consultants Purvin & Gertz in Singapore, predicted that many traders will view the current price of oil as marginally undervalued and will likely buy the commodity to turn a profit on expectations of rising demand.

"With Chinese aggressively building crude and oil product reserves, the overall demand growth in China this year will likely get stronger," he forecast.