As of midday today, the NYMEX is up $0.0201 on heating oil, up $0.0024 on RBOB and down $0.30 on WTI.
As we have mentioned in the past, there is an inverse relationship between the dollar index and oil prices. Yesterday we saw oil prices weaken as the U.S. dollar continued to strengthen. The strength yesterday can be attributed to anticipation of a rate increase in June by the Federal Reserve. Concurrently, this encouraged investors to cash out of longer positions in Brent and WTI futures.
The strength of the dollar did bring the oil market down a decent bit early yesterday, but contracts staged a solid comeback after some bullish developments in the afternoon. By the end of the trading day, the settlements were not too dissimilar from Wednesday’s settles. WTI lost 3 cents/bbl on crude, heating oil closed down 43 points and RBOB was down 150 points.
A reason for bullish hopefuls (such as oil & gas producers) to be happy today is the news coming out of France. With strikes and slowed production occurring in France, the union that lobbied for the strike at Total’s French refinery has made a statement saying the refinery should stop all production. Even though France is not one of the world’s largest producers, one might expect that if France stops producing some others may follow in their footsteps.
Another reason the bears couldn’t stand their ground yesterday was the action taken by Suncor in Northern Alberta and further resistance in Nigeria. Suncor announced that it would extend force majeure on the Syncrude project in northern Alberta. Also, reports that intruders attempted to block access to Nigeria’s Qua Iboe oil terminal boosted the spirit of the bulls.
"We feel that markets have moved too high, too far, too soon," said Harry Tchilinguirian, the lead commodities/oil strategist at French bank BNP Paribas . He believes that with the combination of a stronger dollar and excess supply crude will likely get back down into the 30s.
This view conflicts that of Goldman Sachs, who has been saying that the oil market is likely to stay around the 50 dollar level on crude.
With all of this being said, it is important to remember that sometimes short term supply disruptions can distract the market from paying attention to the facts and fundamentals.