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Strange Bedfellows Ebola and Crude Oil

By:
Barry Norman
Updated: Aug 24, 2015, 22:00 UTC

Crude oil prices recovered in Friday’s Asian session to trade at 91.76 after falling below $90 on Thursday. Global oil remains weak as the US dollar

Strange Bedfellows Ebola and Crude Oil

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Crude oil prices recovered in Friday’s Asian session to trade at 91.76 after falling below $90 on Thursday. Global oil remains weak as the US dollar recovered its momentum in the early session. Brent oil declined by 20 cents to trade at 94.02 with the spread moving below the $3 level. The spread should trigger some adjustments during the session today. The price of Brent oil continued to fall in the last two weeks and fell below $95 at the end of the commented period for the first time since June 2012. In addition to the main story currently monitored by oil markets, i.e., the convenient supply situation combined with concern about demand growth, the price of oil was also driven down by the continuing appreciation of the US dollar, which has primarily benefited from low inflation in the euro area most recently.

While the positively sloped forward curve suggests a fairly easy situation in the market (the price spread between the front-month and the six-month contracts has been negative for the longest period since 2010), a change in the mood of the speculative part of the market is also clearly evident. The latest Commitment of Traders reports from ICE and CFTC pointed out a relatively rapid fall in net specific positions in futures for both Brent and WTI. The ratio of long and short speculative positions in futures for Brent even reached the lowest level since the report came into existence (January 2011). The persisting strong bearish mood is also confirmed by the data from oil product markets about positions in distillates – the Gasoil at ICE and the Heating Oil No. 2 at the NYMEX exchange. The net speculative positions in the latter contract fell to their historical low.

Global oil demand could be hurt as a new factor enters the marketplace. The International Monetary Fund is warning that any spread of the Ebola outbreak would be a severe risk to the global economy. Speaking after the first Ebola case emerged in Texas, managing director Christine Lagarde called for “real” action to counter the Ebola crisis and said that talk alone was not enough.

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 The cost of oil rose ahead of the latest US jobs report and after hitting multi-month lows a day earlier in response to key exporter Saudi Arabia cutting prices. Analysts say the move by Saudi Arabia, OPEC’s biggest producer, signals its focus on maintaining market share amid a broader increase in production by rivals. US jobs figures are closely watched by crude investors for clues on the state of economic recovery and demand in the world’s top oil consumer.

Gasoline prices in U.S. are dropping toward $3 a gallon as crude oil slumps, according to the nation’s largest motoring group. The fuel’s decline follows drops in New York-based gasoline and oil futures. Rising production from shale and other sources has pushed U.S. crude output to a 28-year high, helping increase global supplies as demand is slowing and driving down prices.

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The International Energy Agency last month reduced its projections for demand growth this year and in 2015, citing a weakening economic outlook. Higher exports from Libya and booming U.S. production “deepened the overhang in crude markets,” the Paris-based IEA said. U.S. oil consumption will decline to 18.92 million barrels a day this year from 18.96 million in 2013, the EIA, the Energy Department’s statistical arm, said in the monthly Short-Term Energy Outlook on Sept. 9.

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