|
Oil prices trading in positive territory on Wednesday
Published on November 18, 2009 by oilprices · 1 CommentCrude oil prices are trading in positive territory on Wednesday, led by strong demand for US heating oil futures. Light, sweet crude oil futures for December delivery traded 36 cents, or 0.5%, higher at $79.26 a barrel on the NYMEX, while Brent crude oil futures on the ICE Futures Exchange traded 28 cents, or 0.4%, higher at $79.04 a barrel.
Oil futures are also closing in on $80 a barrel, a price that would allow a large number of owners of December crude options to exercise their contracts before expiration.
Over time, a rally centered on a refined product future can lead to increased oil demand by refiners, as they can profit from the widening gap between fuel and crude prices. The margins for heating oil, based on a widely used formula comparing the product’s futures contract to oil futures, has gained back ground in the last two sessions after trending lower for weeks.
“Heat is the strongest thing on the board … that’s probably making more people on the refining side a tad happier because margins have been so horrible,” said Tony Rosado, a broker with GA Global Markets in New York.
Demand for heating oil is still weak in the US, the fuel’s main market, likely limiting any gains in the product’s futures contract. A strengthening US dollar is also putting a tight lid on any budding rally, with the U.S. currency moving from $1.50 to $1.4849 to a euro.
Oil futures have risen steadily all year as a primary venue for funds leaving the weakening dollar, as crude becomes cheaper for holders of other currencies.
Emerging markets, particularly China, the largest oil consumer after the US, are growing faster than expected. That’s kept oil prices from falling back into the summer’s trading range, which maxed out at $75 a barrel.
“Although this emerging market demand growth is currently not strong enough to offset weakness in developed economies, going forward it is expected to crowd out future demand growth requiring high oil prices to keep the market balanced,” wrote analysts with Goldman Sachs Group Inc.
Tags: oil prices, trading, US
Like or Dislike, Vote Now:
0 
0
Typically a weaker US Dollar provides support to the oil market for two principle reasons. The first is due to the fact that primary commodity market is priced in US Dollars. A weaker dollar directly increases the relative value of the commodity for investors outside the USA, in simplified terms, the cheaper the dollar is, the more of the commodity an investor can buy with the same amount of the stronger domestic currency.
Secondly, investors and traders often purchase commodities such as crude oil and gold as a protection against inflationary forces. When the US Dollar falls investors buy the commodity to retain value.
Whilst many will debate the relative factors and influences on the current oil market, others argue that the general consensus points to the sustainability of current prices.