Crude oil continues to take its cue from equity markets. With risk aversion high, the focus remains on the negative fundamental factors in the crude oil market. These continue to weigh on crude oil, especially the NYMEX WTI contract. Stocks at Cushing are set to reach 100% of capacity by mid-June at the current build rates. With the contango widening, the time spread will encourage buyers to store crude for forward delivery, but it has also had knock-on effects across the petroleum complex.
For instance, the NYMEX 3-2-1 crack gained about $4.00/bbl last week, closing at almost $17/bbl on Friday. If widening crack spreads were an accurate reflection of the fundamentals, refiners should be ramping up production, but instead production is declining. It seems the prompt-month NYMEX WTI contract doesn’t reflect the cash market values where differentials place physical pricing well above the screen value, implying that NYMEX WTI has been pushed artificially low. The sentiment regarding NYMEX WTI should become clearer this week with the expiry of the Jun-10 contract tomorrow and clarity on refinery run rates from this week’s DOE data. Given that WTI front-month prices seem artificially low, we increasingly look for price support. As pointed out yesterday, US equities are key to crude oil prices at this stage. The co-movement between US equities (represented by the S&P 500 Index) and crude oil has strengthened in recent weeks, with the current beta (measured over the past 30 days) at 1.47. A beta of 1.47 with US equities implies for every 1% decrease in the S&P 500 Index, WTI will decrease on average by 1.47%. *Courtesy: Standard Bank* -- Regards Hardik Shah -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
