Oil Prices Remain As Investors Fear Uncertainty

(CEP News) - Rising positive sentiment has not provided much support for oil prices as they continue to trade well below recent highs.

Oil prices were unable to hold their gains despite a positive open to equity markets Tuesday morning. WTI hit session highs just before the open at $42.06 a barrel but then fell sharply and are now relatively flat on the day trading around $40.

Commodity markets were hit hard on Monday after U.S. equity markets broke through psychological levels in the Dow at 7,000 and in the S&P 500 at 700.

Phil Flynn, analyst from Alaron Energies said risk aversion/appetite will continue to dominate commodity markets. He added oil prices will continue to struggle as uncertainty hovers over the U.S. economy.

“Once again and the quest to move capital where it will be the most safe drove the price of oil more than any major changes in hard core supply and demand expectations,” he said.

Although prices are down sharply, Colin Cieszynski, market analyst from CMC Markets said $40 seems to be holding as support, which suggests that the market could be in a bottoming process.

Constanza Jacazio, commodity analyst from Barlcays Capital said the OPEC meeting could provide support for oil prices in the short term. He added there are risks that the oil cartel could continue to cut output.

However there is no clear consensus and he said there is the potential that the group holds off on any further cuts.

“If the case for a cut is hard to justify based on demand/supply considerations it can easily be built around the need to stabilise market sentiment and prop up prices which still look too low,” he said. “To an OPEC Minister, at a price of $40/bbl, the risk of cutting production too aggressively appears a much more manageable risk than not cutting enough.”

WTI Crude oil is up $0.14 to $40.29 while ICE crude oil is trading up $0.47 to $42.68.

Meanwhile, ICE RBOB gasoline futures are down $8.63 to $128.62 and Globex natural gas is unchanged at $1.26. Heating oil at the ICE is down $11.63 to $115.12.

In the mining sector, spot gold is trading down $17.75 to $908.35 USD. In Canadian dollars, gold is down $20.46 to C$1177.31. Silver contracts at the CBOT are down $0.61 to $12.51.

Bloomberg’s index for base metals is up 2.20 points to 110.36. Wheat futures at the CBOT are down $4.00 to $502.00.

All data taken at 11:08 a.m. EST

By Neils Christensen, neilsc@economicnews.ca

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