Tags: commodity | oil | demand | market

Overall Commodity Weakness Might Mean Trouble for Oil

By    |   Tuesday, 21 May 2013 08:16 AM

Oil prices have risen this year while most other commodities have dropped, and that may spell doom for black gold, experts say.

As of Friday, the benchmark Nymex crude-oil futures was contract was up 4.6 percent for the year to date, compared with a 5.6 percent drop for the Dow Jones-UBS Commodity Index, The Wall Street Journal reports.

But there's not a solid foundation for the strength in oil, given that the U.S. economy's expansion remains sluggish, domestic oil inventories have soared to a three-decade peak and domestic oil production is taking off while domestic oil demand isn't, The Journal points out.

Editor's Note:
The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

"I think the optimism is a bit misplaced," Jaya Bajpai, managing director of Applied Energy Analytics, an oil and natural gas hedge fund, told the paper.

"There's a significant disconnect between the physical market and the financial market for oil," he said, noting that the oil rally stems from hopes "we will get enough economic growth over the next six months that demand will recover."

Much of oil's gains reflect demand from investors rather than end users.

Meanwhile, physical oil demand is apparently stronger in Asia.

The Organization of Petroleum Exporting Countries (OPEC) will boost crude exports in May to satisfy the increasing demand from Asian refiners, according to tanker tracker Oil Movements, Bloomberg reports.

"Demand is pulling sailings up,” Roy Mason, the company’s founder, told the news service. “The increases are mainly heading eastbound from West Africa and the Middle East. That makes sense because this is the peak of the eastern season. They’ll need more crude.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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Oil prices have risen this year while most other commodities have dropped, and that may spell doom for black gold, experts say.
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2013-16-21
Tuesday, 21 May 2013 08:16 AM
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