The Crude Oil Futures Marke in April 2014

Source: OPEC 5/4/2014, Location: Europe

ICE Brent declined by 1% m-o-m amid very weak market fundamentals. This occurred despite the continued impact of Libyan supply outages as well as the crisis in Ukraine. Brent crude fell as a seasonal slump in demand and ample supply led to a near 3% price slide since the beginning of the month, though it briefly jumped to a three-month high above $112/b on developments in the Crimea. Concerns over a slowdown in China’s economic growth offset tensions in Ukraine, pushing down prices. China’s GDP growth target for 2014 has been set at 7.5%, similar to the preceding two years. The growth target has gained importance in recent years, as the country experienced a slowdown in its growth rates, making 2013 the first year in which it has not overshot its goal. Since the government has not lowered its target, it might hint at a willingness to impose stimulus programmes to keep growth in a range of 7.0-7.5%.

Nymex WTI front-month also fell, though moderately. It remained above $100/b for the second month in a row. Earlier in the month, Nymex WTI recorded its biggest drop in two months following an US Energy Information Administration (EIA) report showing a large crude stock build, while a surprise announcement of the test release of 5 mb from the SPR added further pressure. Most of the crude build was on the USGC, as spring refinery maintenance caused US utilization rates to decline to a five-month low. Nevertheless, the drop in the US benchmark has been capped by a continued drawdown in oil stocks at Cushing, Oklahoma, its pricing point, as rising pipeline capacity draws down stocks in the US midcontinent. The US benchmark was also supported by positive US employment and factory output data. The Nymex WTI front-month slipped by a marginal 17¢, to average $100.51/b in March. Compared with the same period in 2013 or to the first quarter a year ago, WTI values are significantly higher, by $4.31 or 4.6%, reaching $98.68/b. ICE exchange Brent front-month plunged $1.09 to an average of $107.75/b. ICE Brent was lower in value compared with the same period last year. Its value weakened by $4.75 or 4.22% to $107.90/b from $112.65/b.

Crude oil futures prices improved further in the 2nd week of April. On 9 April, ICE Brent stood at $107.98/b and Nymex WTI at $103.60/b. Data from the US CFTC showed that hedge funds and money managers reduced their bullish bets in US crude oil futures and options, cutting their net long US crude futures and options positions during March as prices slid. The speculator group cut its combined futures and options positions in US crude oil contracts from a record number reached the previous month by 45,649 lots to 293,403 contracts over the month. Similarly, net long positions of the speculative community in ICE Brent dropped by 9,849 contracts to 130,072 lots by the end of the month. Moreover, the total futures and options open interest volume in the two markets decreased in March by 80,370 contracts to 3.9 million lots. Meanwhile, investors appeared to be pulling out of commodities like oil to take advantage of the equities rally.

The daily average traded volume during March for Nymex WTI contracts increased by 38,108 lots to average 557,118 contracts. ICE Brent volume also moved up by 28,906 lots to 562,348 contracts. The daily aggregated trade volume in both crude oil futures markets increased by 67,014 lots in March to around 1.12 million futures contracts, equivalent to 1.12 billion b/d. The total traded volume in Nymex WTI and ICE Brent contracts was 11.70 million and 11.81 million contracts, respectively, over the month.


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