Oil bulls and bears set to wrestle again on 2009 price trend
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Oil traders continued to sell off near-term crude futures today as the contract for January delivery expired in New York, driving the price below $34 a barrel, to a new four-year low.
But when you see oil quoted next week, it will be back above $40 on the February futures contract.
Why? The oil market is in so-called contango: Prices are higher on contracts for future delivery than for current delivery. That’s a function of the huge supplies in the market.
From Bloomberg News:
Supplies at Cushing, Okla., where oil that’s traded in New York is stored, rose 21% to 27.5 million barrels last week, the highest since May 2007. OPEC’s biggest output cut in more than a decade this week failed to stop a price drop as the recession sapped demand. ‘At this stage it’s not what OPEC is doing that moves the market; instead it’s the big builds at Cushing,’ said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA in New York
So the question is whether supplies will continue to surge, putting more downward pressure on the February futures contract -- or whether traders will begin to believe that oil producers will get serious about deeper output cuts as demand continues to wane.
The February oil contract ended at $42.36 a barrel today.
‘The last-standing bulls are rolling over’ to buy the February contract while ‘dumping their January oil on the market,’ Phil Flynn, vice president at futures brokerage Alaron Trading, told MarketWatch.com.
OPEC isn’t giving up, at least with its jawboning: The cartel may meet again in Kuwait on Jan. 19 to discuss further production cuts, Chakib Khelil, the president of the group, said today, according to Bloomberg News. OPEC will continue cutting output as demand falls, Khelil pledged in an interview in London.
-- Tom Petruno