After touching a 15-month high of US$83 a barrel last month, crude has retreated to the mid-$70s. It was 8 per cent off the recent peak yesterday, after slipping to about $76 a barrel on the New York Mercantile Exchange. That was not crude's weakest showing this year. Last week it dipped below $73. But investors may wonder whether crude's year-long rebound is fizzling out.
Market fundamentals are not bullish. Crude's latest two-day decline followed a US government report that showed oil stockpiles were swelling last week, suggesting the recovery of the world's biggest economy could be stalling. "Strong contraction in distillate demand, which belies the recovery in the US suggested by the latest GDP and manufacturing data, is weighing on sentiment," Harry Tchilinguirian, the head of commodity derivatives research at BNP Paribas in London, told Bloomberg.
Mr Tchilinguirian was referring to demand for fuels such as diesel, used in most industrial heavy lifting and in lorries and trains. US refineries operated at 77.7 per cent of capacity in the week ending on January 29, the lowest rate in more than two decades except for two periods when US Gulf Coast refineries suspended operations because of hurricanes. "Demand is still getting weaker. People are at a crossroads," said Clarence Chu, an options trader at Hudson Capital Energy in Singapore.
Mr Chu believes crude is still on an upwards trend. Not so Mr Tchilinguirian, who predicts prices will be stuck near $75 until the second half of this year. Meanwhile, Gulf oil producers are frustrated with OPEC quota reductions and are impatient to increase supplies. Arab oil export earnings fell by more than 50 per cent last year, said the 11-nation Organisation of Arab Petroleum Exporting Countries.
The organisation said it hoped this year would be "more positive" for its members. They had better not hold their breath. @Email:firstname.lastname@example.org