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Oil Price Remains Under Pressure On Weak Stock Markets And Strong Dollar

Tue, Jun 9 2009, 05:13 GMT
by Oil N' Gold Team

Oil N' Gold  |  View company's profile

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Crude oil price retreated to as low as 66.78 yesterday due to strength in USD and correction in stock markets. However, the gauge managed to find buying interest at that level and recovered to 68.09, -1.09%, at close. Others in the energy complex also lost during the day with natural gas, gasoline and heating oil sliding -3.5%, -1% and -0.1%, respectively.

The dollar surged against high-yield currencies Monday as recent talks about Fed's rate hike remains in progress. As USD's gain will likely extend further until CME's settlement has completed, crude oil should remain under pressure, probably below 70, as appeal of the black gold reduces.

Stock markets continue to suffer in Asian session with the MSCI Asia Pacific sliding 0.8%. Japan's Nikkei 225 Stock Average slips 1% and Hong Kong's Hang Seng Index losing 2%. Rallies in the previous months looked overdone and made valuations stretched. Leading the fall were commodity and financial shares. CNOOC, a China oil company, drops more than 3% in Hong Kong while BHP Billiton plunges 3% in Australia after making an 8-month high last week.

Natural gas's -3.5% was driven by the weak fundamental as investors priced in the worse-than-expected storage report which was overshadowed by strong market sentiment last week. Although the current oil-to-gas ratio of 18 looks too high compared with historical average, we find it reasonable given the gloomy demand/supply outlook in natural gas market. We expect the ratio will hover around this level for the rest of the year. 

Look at petroleum products, heating oil price has picked up rapidly since mid-May due to rises in crude oil and gasoline price. Rise in heating oil price also caused sharp rally in distillate cracks. However, we believe the trend is not sustainable as distillate stockpile is still abundant while demand remains sluggish. By contrast, gasoline crack has declined recently.

Gold price continues to trade lower after losing totally 3% in the previous 2 trading days. We also saw signs of investment demand flowing out of the market as bullion holdings in SPDR ETF Gold Trust dropped last Friday.

Organization for Economic Co-operations and Development (OECD) reported that composite leading indicator for the OECD area increased to 93.2 in April from a revised 92.7 in the prior month. Although the increase is modest, it indicated that the pace of contraction may have been eased in advanced economies.

Published on  Tue, Jun 9 2009, 05:15 GMT

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