My review published on April 15 was titled “Brent: a stone’s throw to $100”. Over the past two and a half weeks Brent has not only reached this mark, but also touched the level of $97 per barrel (at least since June 2012). By the end of the month, black gold could rebound to $104, but on May 1 it has returned to the level of $100.
Light Sweet NYMEX had similar dynamics: a drop below $86 per barrel, then a recovery to $94.5, and finally a return to a 200-day moving average at around $92.
One of the main negative factors for oil is growing oil inventories in the United States. On May 1, the Department of Energy reported that on April 20-26, commercial crude hydrocarbon reserves in the U.S. reached the highest level of 395.3 million barrels. Weekly reports on commercial crude oil inventories are published in the U.S. since 1982, so a rise by 6.7 million barrels for a week hit a new 30-year record.
The world’s main oil consumer – the United States – show woefully low demand this year. Despite new summer driving season, statistics shows a decline in gasoline demand. Even the decline in fuel prices cannot stimulate the car enthusiasts. Obviously, this summer Americans prefer to save money, which indicates bad consumer sentiment.
The news from second largest oil consumer – China – is also discouraging. Manufacturing PMI came out at 50.6 in April vs. 50.9. On knowing that the level of 50 separates the growth from reduction, it becomes clear that the increase of industrial activity in China is close to zero. Such dynamics in China is another negative factor for oil.
Last week, the oil players’ attention was focused on the publication of the U.S. Nonfarm payrolls report (NFP). Positive results have convinced the market that the world’s leading economy recovers, which means that its demand for energy will grow. As a result, Brent crude approached the level of $105, while Light Sweet hit a new high at around $97.5 per barrel.
In this situation, the preferred tactics in the oil market is to bet on further narrowing of the spread between Brent and Light Sweet, i.e. buying Light Sweet on declines and selling Brent on the rise.