Oil prices regained some ground on July 10 from their recent tumble of nearly $10 a barrel, as traders monitored escalating political tensions in the Middle East but also signs of slowing demand.
Crude, trading up $1.58 at $137.63 a barrel, appears to have reached another key level in its multi-year surge. Investors don’t want to lose out on another move upward, but they are also seeing reasons — most notably, the flagging U.S. economy — to believe that oil might be peaking.
The delivered price of Alaska North Slope crude oil closed on July 9 at 135.35, one cent up from the day before.
“Here in the United States, airplanes are being grounded. Travel has definitely changed. People are looking at hybrids,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.
“It’s been about a three- or four-year bull market, and anyone who has called a peak in this market has ended up with a red face,” he said. However, “it appears that demand destruction is at a level where we might have seen the high in oil prices.”
The U.S. Energy Department reported July 9 that demand for gasoline over the four weeks that ended July 4 was 2.1 percent lower than a year earlier, at about 9.3 million barrels a day. The big factor behind the waning demand: U.S. roadside gasoline prices are well above $4 a gallon, on average.
Prices could head up againCertainly, oil prices could regain momentum.
A day after Iran tested a missile capable of reaching Israel, OPEC’s secretary general said July 10 that the oil producing group will not be able to replace any shortfalls if Iran is attacked and takes its crude supplies off the market. Iran has control over the Strait of Hormuz, a passageway that handles about 40 percent of the world’s tanker traffic.
Meanwhile, attacks on Nigerian oil facilities could again disrupt supplies in that oil-rich region. On July 10, Nigeria’s main militant group vowed to resume attacks because of Britain’s recent pledge to back the government in the conflict there. Attacks by the Movement for the Emancipation of the Niger Delta over the past two years have already slashed the country’s normal daily oil output by a quarter.
And there hasn’t been a major hurricane yet this season to threaten oil facilities in the Gulf of Mexico. If a storm approaches in the coming months, prices could easily shoot higher — particularly for heating oil, which rose 10.24 cents to $3.954 a gallon in trading on July 10. It’s one thing to cut back on driving; using less heat during the winter months is tougher.
But given the heightened tone of sabre-rattling between the Middle East and the United States and Israel, the move in oil has been fairly listless, analysts say — indicating shaky conviction, at least at this point, in the energy markets.
“If the market was really nervous about a confrontation between the U.S., Israel and Iran, we would be up substantially more,” said Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos. She said the modest rebound on July 10 appeared more technical in nature, and cited crude’s recent pullback of nearly $10 a barrel as the main reason some traders were re-entering the market.
By early afternoon, light, sweet crude for August delivery rose $1.58 to $137.63 on the New York Mercantile Exchange. On July 9, prices had seesawed before settling a penny higher at $136.05, ending two days of sharp declines that left prices 6.4 percent below the record trading high of $145.85 a barrel on July 03.
Gas prices yet to dropU.S. pump prices have yet to follow crude’s recent retreat. The average roadside price for gasoline stands at $4.104 a gallon — just a hair below the record $4.108 hit on July 7, according to auto club AAA, the Oil Price Information Service and Wright Express.
It’s very possible that oil prices will soar again to new records, but Rafield said it’s more likely that they will consolidate at these levels — especially given that last week’s record highs were achieved in weak, low volume conditions.
“I don’t think we’re going to imminently fall out of bed here. But I’m finding it difficult to justify prices at much higher levels,” she said, pointing to weak U.S. economic data.
The International Energy Agency on July 10 slightly raised its forecast for global oil demand this year to 1 percent growth from 0.9 percent growth. But the Paris-based watchdog said that demand growth in developing countries is offsetting contracting demand in developed countries.
“The contraction in demand is expected to be particularly marked in North America, given the weakness of the U.S. economy and high oil prices,” the IEA said.
In other Nymex trading, gasoline futures added 3.33 cents to $3.4141 a gallon. Natural gas futures rose by 19.1 cents to $12.197 per 1,000 cubic feet.
On the ICE Futures exchange in London, August Brent crude rose $1.37 to $137.95 a barrel.