On Tuesday, crude oil contracts for August expired on NYMEX, reaching a three-week high settlement at US$77.44/bbl, which was a 90 cent rise day over day and the second day of increases, as per Chemorbis. The September contract also rose that day by 68 cents to settle at US$77.58/bbl, before plunging lower on the previous day by US$1.02. It was a volatile trading day Tuesday for the expiration of the August contracts as they started the day in New York by falling as low as $75.75/bbl because of the lower opening of the US equities markets. However, equity markets recovered and oil analysts say a tropical wave forming in the Caribbean was largely responsible for the rally in crude which helped close out the month of August at a higher level. The tropical wave could potentially threaten production in the Gulf of Mexico, analysts pointed out after the National Hurricane Center said it had a 60% chance of developing into a tropical cyclone, although as of yesterday the storm was reported to be weakening slightly. According to some analysts, oil wouldn’t have risen if it weren’t for news of the storm. The Gulf of Mexico accounts for around 31% of US oil output and 10% of its natural gas production, plus the states along the Gulf make up 43% of US refining capacity. In addition to the storm, analysts were estimating that crude oil stockpiles would fall 1.2 million barrels ahead of an Energy Department report released yesterday.
Another factor which added slightly to the bullishness in the early part of this week was the strong China oil figures when the International Energy Agency (IEA) declared on Monday that China’s consumption continues to grow and actually surpassed the US last year as the world’s biggest energy user. China consumed 2252 mln metric tons of oil equivalent in 2009 in the form of oil, coal, natural gas, nuclear power and renewable sources, IEA’s chief economist said. That exceeded the 2170 mln tons used by the US. Oil analysts said the news was bullish because it happened a lot sooner than expected by players in the industry. Yesterday, however, the direction of the crude oil market turned back to fundamentals when demand became the focus after an unexpected gain in US crude inventories. Oil analysts were surprised when the US Department of Energy showed crude oil reserves rising 400,000 barrels in a week versus expectations of a drop of 1.3 million barrels. Oil traders also turned away from storm watching and took note of other fundamental comments from the US Federal Reserve Chairman, Bernanke who said the US economic outlook remains “unusually uncertain”.