IPE Brent futures edge higher as funds move out of long positions

London (Platts)--16May2006

IPE Brent futures in London traded higher early Tuesday as funds moving
out of long positions slowed following the $3.76/barrel collapse on Friday and
Monday amid a broad-based selloff.
Fear over inflation and high commodity prices; impact on economic growth
and crude oil demand sparked a retreat in the price of global commodities.
"It's picked up a little bit this morning and was near unchanged after
coming under more pressure last night as US non-commercials continued to
sell," said one London-based broker. "But it's a question of waiting to see
what it does when NYMEX opens this afternoon and whether funds have done
enough."
At 1029 GMT, the front-month June IPE Brent futures contract had
strengthened 9 cents from Monday's close of $69.67/barrel, trading at
$69.76/barrel. It is a sizable recovery from the inter-day low of
$68.58/barrel registered at 0100 GMT.
Concerns over economic growth was the main factor causing the recent
collapse in oil prices. "General sentiment, I think, a slide in most financial
markets and people are suddenly risk-adverse," a market source said.
On Monday, front-month June lost almost two dollars in value with open
interest on ICE for the contract reaching 24,955 with June trading 62,398
lots. The picture was not any rosier on the products side on Monday, with the
NYMEX unleaded gasoline contract for June down 9.35 cents to $2.085/gallon,
and the heating oil contract off 7.47 cents to $1.972/gallon.
Natural gas, on cooler-than-normal Northeast temperatures, also was down,
by 11 cents to $6.17/MMBtu.
Previously bullish sentiments in the industry, such as the strength of
gasoline and demand for gasoline and global demand for crude have been
replaced by bearish elements after the International Energy Agency shaved its
oil demand forecast and high gasoline priced dented demand in the US.
The IEA slashed its demand estimate for 2006 by 220,000 b/d, saying high
prices had hurt demand in key consuming regions.
Saudi Arabia's oil minister Ali Naimi echoed a similar sentiment Monday.
Naimi said strong global economic growth was behind high demand for crude and
was driving prices higher.
But he warned that producing countries could not count on this level of
demand growth continuing indefinitely. According to Naimi, one of the
challenges faced by Arab producers was uncertainty about future demand and
price direction.
--Jonathan Davies, Jonathan_davies@platts.com

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