Despite a surprise drawdown in domestic crude stocks reported today, U.S. crude oil futures fell once more on the New York Mercantile Exchange Wednesday, pressured by oil traders' increasingly bearish outlook regarding the market's underlying fundamentals, as well as concerns about the global economy's recovery.
Recording a negative movement on the NYMEX for the sixth consecutive session, the price of light, sweet crude oil closed nearly $2 less than its previous settlement to $70.67 a barrel. Additionally, natural gas spot prices at the Henry Hub reversed to just under the $5-threshold to settle at $4.898 per thousand cubic feet.
"We have broken out to the downside of this $75-$80 range in the crude oil market that had been holding since the middle of October," noted Bill O'Grady, the chief markets strategist at St.Louis-based Confluence Investment Management LLC. "We fell out of it yesterday and accelerated today on government data that wasn't really all that bearish -- you had a bullish crude number, but the product numbers were not very strong."
Interestingly, the dollar's three-day advance collapsed against the euro on Wednesday, which did little to prop up energy prices. Typically, a weaker greenback loses its safe-haven appeal, spurring traders toward cheaper dollar-denominated commodities.
EIA Shines Spotlight on 'Bearish' Product Build
Today, the U.S. Energy Information Administration confirmed an unexpected decrease in crude stocks by 3.8 million barrels to 336.1 million barrels last week, much to the surprise of analysts who had anticipated another build on top of the market's already overloaded inventories.
Distillate stocks, on the other hand, rose by 1.6 million barrels, while gasoline supplies climbed by 2.2 million barrels -- both larger-than-expected builds that sent heating oil and gasoline futures reeling.
"Although the crude number was bullish, to have distillate [inventories] go up this time of year is not very good," O'Grady reiterated.
Risk Factor Too Great in Light of Global Debt
Still grappling with concerns over foreign debt, Wall Street saw both the Standard & Poor's 500 and the Nasdaq indexes lose ground today, cautioning investors away from riskier markets. Mounting concerns over the stability of the world's economy as a whole has recently led to a correction in oil prices; however, macroeconomic concerns have weighed on other commodities, as well.
"Commodities dropped across the board today, and I think it's much more related to worries over increasing risk in the financial system more than anything," O'Grady pointed out.
"Anytime you get an increase in concern about risk, that tends to lead investors out of commodities in general," O'Grady explained. "There was a big sell-off in energy commodities -- even natural gas, which has been strong lately. You also saw weaker grain prices today, soybeans dropped about 15 cents and the gold market just got hammered, so this was pretty indiscriminate," the analyst contended.
"However, I don't think this necessarily means we're entering into a new bear market in commodities," the analyst stressed. "I think it just means we're going through a period of correction."
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