MARKET WATCH: Technical market tactics drove recent oil-price rallies

Light, sweet crude oil prices for September delivery gained slightly on the New York market Aug. 19 to close at about $48.50/bbl during a week in which daily gains rose by more than $1/bbl twice but analysts generally agreed the rallies stemmed from technical trading reasons rather than oil market fundamentals.

Ole Hansen of SaxoBank said the rallies stemmed from short-covering, a term referring to buying back oil contracts previously sold. Oil prices rose after Saudi Arabia said it was willing to meet with other members of the Organization of Petroleum Exporting Countries to discuss oil-price stability.

“These comments forced a major round of short-covering last week,” Hansen said. “A rally purely driven by short-covering does not look healthy from a longer-term perspective.”

Barclays analysts said crude oil prices are apt to experience a correction that would see a short-term price dip in coming weeks. But Barclays said Brent oil prices should average $50/bbl by the fourth quarter.

Miswin Mahesh, Barclays analyst, said, “The stars remain misaligned for an OPEC/non-OPEC freeze agreement, but it is beneficial for producers to talk.”

Mahesh referred to a freeze of oil production at current levels. OPEC representatives have said they will meet informally on the sidelines of another energy conference in Algeria during September.

“Though Iran now sits roughly 200,000 b/d away from its monthly presanctions peak in May 2011, we do not see it accepting restraints on its output, and without Iran’s inclusion, Saudi Arabia will not take part,” Mahesh said in a Barclays research note.

Earlier this year, OPEC and non-OPEC members discussed but failed to reach an agreement on maintaining production at current levels.

Energy prices

The NYMEX crude oil contract for September gained 30¢ to close at $48.52/bbl on Aug. 19. The October contract climbed 22¢ to close at $49.11/bbl.

The natural gas contract for September declined 9¢ to a rounded $2.58/MMbtu. On the spot market, the Henry Hub gas price fell 6¢ to $2.64/MMbtu.

Heating oil for September fell less than a penny to a rounded $1.52/gal. The price for reformulated gasoline stock for oxygenates blending for September rose 2¢ to a rounded $1.51/gal.

The Brent crude contract for October on London’s ICE declined 1¢ to settle at $50.88/bbl. The contract for November was up 4¢ to $51.19/bbl. The September gas oil contract settled at $441.50/tonne on Aug. 19, down 75¢.

The average price for OPEC’s basket of 12 benchmark crudes was $46.82/bbl on Aug. 19, up 32¢.

Contact Paula Dittrick at paulad@ogjonline.com.

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