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Crude Oil Hits Ceiling in Week as Hedge Funds Attack Euro (February 27, 2010)
Oil Market Summary for 02/22/2010 to 02/26/2010
Crude oil broke through the $80 a barrel ceiling repeatedly during the week but kept falling back as hedge funds placed big bets on the Euro’s decline.
The fiscal drama in Greece held global markets hostage much of the week as worries about the impact of the Greek crisis on the euro outweighed comments from Federal Reserve chairman Ben Bernanke about continued low interest rates in the U.S., pushing the euro down against the dollar and damping crude prices.
The euro recovered some ground on Friday amid new reports of European aid for Greece after falling to a nine-month low of $1.3440 on Thursday. Germany’s state-owned bank KfW may take part in a planned Greek bond offering next week, according to market reports.
The Wall Street Journal reported on Friday that a small group of elite hedge fund traders have concluded that the euro could be headed to parity with the dollar and their bearish bets are increasing the downward pressure on the 16-nation currency.
The Journal compared the situation to the hedge fund attack on the dollar in 2008. However, the trades are not expected to lead to a collapse of the currency as the attacks of George Soros on the British pound did in 1992, the paper said.
Positive U.S. economic data on Friday, including a revised fourth-quarter GDP annual growth rate of 5.9%, help crude oil futures claw back some of Thursday’s losses and near the $80 threshold again. Nymex’s benchmark West Texas Intermediate settled at $79.66 on Friday, after topping $80 earlier in the week.
In spite of crude’s difficulties in staying above $80, some analysts issued bullish prognoses for energy futures. Goldman Sachs forecast a new trading range of $85 to $95, up from the $70 to $80 of the past several months, amid supply disruptions from the North Sea and Venezuela and the impact of the Total refinery strike, which was resolved earlier this week.
Other analysts, too, looked for fundamental supply and demand considerations to reassert themselves amid the currency turmoil and lift crude oil futures into a higher trading range. Oil futures prices gained more than 9% in February but remained below January’s highs.
By Darrell Delamaide of OilPrice.com who focus on
Fossil Fuels Metals, Crude Oil Prices and Geopolitics To find out more visit their website at: https://www.oilprice.com
An easing of the crisis in Europe gave energy markets a firm tone last week that enabled crude oil futures to gain nearly 8% amid mixed economic news and some concerns about supply.
A strike at French oil refineries lifted prices to a five-week high Friday, with the benchmark West Texas Intermediate finishing the week at $79.81. The French strike threatened to limit U.S. imports of refined products from Europe.
Earlier in the week, the show of solidarity by European Union governments regarding fiscal problems in Greece and other countries in the eurozone, eased concerns about the crisis there and downward pressure on the euro.
A move Thursday by the Federal Reserve to raise the discount rate – the rate it charges banks for emergency loans – did however propel the dollar higher against the euro. News on Friday that the core inflation rate in the U.S. actually fell 0.1% in January – the first decline since 1982 – dispelled worries that the Fed would need to tighten further interest rates to combat inflation and led to a lower dollar on Friday.
The weak consumer price index and another weekly increase in jobless claims provided further evidence that U.S. economic recovery continues to be weak.
The weekly report on oil inventories, coming a day late because of the Monday holiday in the U.S., showed increases in crude oil and gasoline stocks but a bigger-than-expected drop in distillates, which includes heating oil. This news buoyed crude oil prices.
A coup in African oil producer Niger on Thursday added to some supply concerns at the end of the week to support higher crude oil prices.
Hedge funds and other speculative traders sharply increased their net long positions in crude oil futures in the week ending Feb. 16, according to trading data from the Commodity Futures Trading Commission, after having reduced them in the previous week.
Andrew Hall, the head of Phibro, is seeking new investors as he reorganizes his hedge fund operations in the wake of Phibro’s move from Citigroup to Occidental Petroleum. Hall, who specializes in energy trading, will manage the new Astenbeck Capital Management, named after a town in Germany where he owns a castle. According to the Financial Times, Astenbeck will take over management of two oil funds previously operating under Phibro’s aegis.
Hall was the energy trader who created a controversy while still working for Citi because of his $100 million bonus. The bonus was deemed politically unacceptable while the bank was receiving a taxpayer bailout and led to Citi selling Phibro to Oxy Pete.
By Darrell Delamaide of OilPrice.com who focus on Fossil Fuels, Metals,
Crude Oil Prices, Alternative Energy
and Geopolitics To find out more visit their website at: https://www.oilprice.com
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