Todays Crude Oil Price

Fundamentals, Speculation, and Oil Prices

Solid line: Price of West Texas Intermediate using near-month NYMEX futures price in dollars per barrel (left scale). Dashed line: Long positions in oil futures contracts of commodity index funds as inferred using the methodology of Masters (2008) (in numbers of contracts or equivalently thousands of barrels, right scale). Source: Singleton (2011).

The diagram above displays the relation between crude oil prices (solid line) and one estimate (dashed line) of the total number of crude oil futures contracts held by funds that are trying to replicate the Goldman Sachs Commodity Index or the separate Dow Jones-AIG index. One of the issues discussed at the conference was some of the problems associated with these estimates of commodity index fund investments .

But a separate issue I wanted to raise is that someone following such an investment strategy was buying not just crude oil contracts, but a variety of other commodity futures as well. For example, a fund following either index would have a long position in natural gas futures. The graph below compares the price of crude oil with the price of natural gas. Although these once sold for about the same price per Btu, they now differ by a factor of 4. Why hasn’t index fund buying pushed up the price of natural gas along with crude oil? The answer is obvious to all of us. The surge in natural gas production within the United States has put irresistible downward pressure on the price of natural gas, a reality that completely swamps any purported effect that commodity index buying could conceivably have.

Here’s another example some people like to give, comparing the price of crude oil with that of rhodium, with the latter scaled so that the two prices were comparable in 2005. The price of rhodium shot up spectacularly relative to crude oil over the next few years. That, too, had nothing to do with index fund investment buying. Neither GSCI nor DJ-AIG includes this commodity– in fact, to my knowledge it is impossible to buy a futures contract in rhodium.

Crude oil price forecast 30 August 2011 | Trading NRG

Crude oil prices started the week with rises following the small changes they have had in recent days. The recent rally in US stock markets including S&P500 probably helped pulling up crude oil prices. The search of Gadhafi is still on and keeps the instability in the region. Recent reports suggest the US refineries have survived Hurricane Irene. Currently, crude oil prices are treaded slightly down. Today, the U.S. consumer confidence report to be published. Following the recent Hurricane Irene that struck the East Coast of the US, the recent reports claim that the US refineries weren’t severally damaged. In any case, it’s projected that the power outages may reduce some of the regional demand for crude oil and natural gas.

On the other hand, the CME Group Inc. declared a force majeure for heating oil shipments into New York for August due to the recent Hurricane attack. Therefore, its not clear what will be the total effect of this Hurricane on the supply and demand for oil in the East Coast.

The S&P500 index inclined again on Monday by 2.83%, and completed a 7.68% rally since the beginning of last week. During August the correlation between oil prices and S&P500 was 0.691 for Brent oil and 0.525 for WTI spot oil . This means, as the Stock market further rises, crude oil prices are likely to follow and incline as well. If the S&P500 index will continue to rise today, it might further pull up crude oil prices .

Current crude oil prices

The ongoing rally in the stock market might continue to pull up crude oil prices .