Industry News
April 22, 2009 Crude Lifted By Equities Despite Oil Supply Glut
Crude futures ended higher Wednesday, supported by equities even as a U.S. government report showed oil demand sinking and inventories increasing.
U.S. crude stockpiles, which were already at their highest point since September 1990, grew for a seventh consecutive week, as oil demand fell to a 10-year low, the U.S. Energy Information Administration said.
Light, sweet crude for June delivery settled 30 cents, or 0.6%, higher at $48.85 a barrel on the New York Mercantile Exchange. The May contract expired on Tuesday at $46.51 a barrel. June Brent crude on the ICE futures exchange settled 1 cent lower at $49.81 a barrel.
Futures traders eventually shed concerns about inventories to follow U.S. equities higher. In the oil market, each uptick in stock indexes is being interpreted as a sign that the economy is coming closer to recovery, and the increase in oil demand that a rebound would herald. The Dow Jones Industrial Average was recently up 0.5% at 8012.
"People right now are giving the economy the benefit of the doubt," said Matt Zeman, president of trading at LaSalle Futures in Chicago. "Oil right now is not trading on the (supply) fundamentals."
A strong run for equities has kept oil prices around $50 a barrel since mid-March, despite swelling inventories and sinking demand.
Oil prices had spent much of the period between December and mid-March trading below $40 a barrel. Demand has only worsened since then, while futures have risen on the uncertain hope for a quick economic recovery. Trading volume has diminished the longer oil remains in a tight trading range, well above where many investors believe futures belong.
"There are a lot of people who ... are very skeptical with regard to the economy," said Stephen Schork, editor of the Schork Report, an energy newsletter. "A lot of money is sitting on the sidelines."
Doubters could find plenty of support in the EIA's inventory data. Oil stockpiles jumped 3.9 million barrels, exceeding the average analyst forecast for a 2.5 million-barrel build. Gasoline stocks rose by 800,000 barrels, where analysts had expected a 300,000-barrel decrease. Distillate stocks, including heating oil and diesel, rose 2.7 million barrels, where analysts had predicted a 600,000-barrel drop.
The unexpected increases in fuel inventories hit refined product futures hard.
Front-month May reformulated gasoline blendstock, or RBOB, settled 2.38 cents, or 1.7%, lower at $1.3906 a gallon. May heating oil settled 1.79 cents, or 1.3%, lower at $1.3299 a gallon.
