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Trading Lessons

Slippery Oil Prices Keep Traders on their Feet

Commodities / Crude Oil Apr 24, 2014 - 12:25 PM GMT

By: Submissions

Commodities

Crude oil price slipped on Wednesday and came very close to reaching a two-week low after weak Chinese manufacturing data. The WTI futures contract for May sustained a loss of $2.24 per barrel after it expired on Tuesday April 22 at $102.13 from an opening price of $104.36. Brent for June was also trading low on Wednesday after it already lost 47 cents during the previous day. But the markets remain volatile as the Ukraine-Russia political tensions might cause a price rally any day.


Rumours within the markets about China’s economic slowdown were boosted after a preliminary report on the economy’s Manufacturing Purchasing Manager’s Index (PMI) pointed towards another month of contraction. The HSBC Manufacturing PMI index was released on Wednesday by Markit Economics for the month of April, with a reading of 48.3. Even though the result was in line with analysts’ estimates, any figure under 50 is a signal of contraction and April’s reading was the fourth month in a row where the gauge remained under that level. The manufacturing sector’s signs of weakness might push Chinese policymakers for additional economic measures to support the weakness. China is currently the globe’s second largest oil consumer.

The price of WTI Crude oil fell even further to $101.20 following a U.S. report on crude oil stockpiles. The Energy Information Administration (EIA), the Energy Department’s statistical unit, releases weekly changes in crude oil storage in the U.S and for the week ended April 18 the inventories increased by 3.5 million barrels. That is the highest level since the weekly data releases began by the U.S. government back in 1982 and so it helped to reduce demand for WTI.

However, the recent price slip of crude oil is by all means fragile and uncertain as there are increasing concerns about the Ukraine–Russia crisis and its impact on global oil supplies. Currently, there appears to be good will from the parties to attempt and resolve the issue through diplomatic methods but many are not convinced that this will remain the case.

Gazprom, Russia’s biggest natural gas producer, is already in dispute with the Ukrainian authorities over $2.2 billion in outstanding bills. The energy giant increased the prices charged to Ukraine for gas by almost 100% but Kiev refused to accept the new price and described the move as political. On a different level, pro-Russian militia units occupy an increasing number of government buildings in Eastern Ukraine.

U.S. Vice President Joe Bidden travelled to Ukraine for a symbolic two-day visit and urged Russia to take measures for the de-escalation of the current crisis. Mr Bidden also warned that the continuation of provocative behaviour would result in ‘greater isolation’ for Russia. Washington and Brussels diplomats already discussed the possibility of increased sanctions on Russia. Currently, the sanctions already imposed are limited to the freezing of assets and travel bans for a number of people closely related to the Kremlin, but there is consideration for further sanctions on economic sectors such as mining, finance, and energy.

Ukraine is a large channel for natural gas supply from Russia to Western Europe, and any military escalation of the crisis in Ukraine is likely to affect supplies. In that scenario, prices would most probably go much higher than they currently are. Investors who are trading natural gas or crude oil should be prepared for increased volatility on prices and any possible rallies should come as no surprise.

Author: David Parker
Marketing Consultant & Content Manager.

Website: www.easy-forex.com

Copyright © 2014 David Parker - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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