That’s why it’s called risky business. After crashing through technical support levels this week, benchmark crude prices recovered lost ground Wednesday after central banks around the globe stepped in to shore up failing financial institutions in the US and EU..North American benchmark West Texas Intermediate (WTI) was hovering just below $70 per barrel this morning after falling below $64 on Monday, its lowest in 15 months. European benchmark Brent — which originates in the Scottish North Sea — was back up above $75 after falling below $70 earlier in the week..Western Canadian Select, a bitumen blend that accounts for 70% of Alberta’s revenue, bounced back above $57 after falling below $45 earlier in the week. It typically trades at a 20-25% discount to WTI before it goes down the pipe to the Gulf Coast. That’s good news for the provincial treasury, which swings about $220 million into the red or black on every dollar up or down. In its budget earlier this month, the province is banking on $79 WTI to balance the books and post a modest surplus..The relative stability in the oil price come after central banks in Europe, the US, Japan and Canada stepped in to provide their respective banking systems with much needed liquidity after the imminent collapse of Credit Suisse and a proposed shotgun marriage with UBS. The former lost more than 75% of its value in less than a week..In the US, regulatory authorities steered a $30-billion rescue plan for First Republic Bank after the collapse of Silicon Valley Bank and the near-death of Signature earlier in the week. .But those are fairly small potatoes compared to Credit Suisse. What it lacked in retail customers it more than made up for as a futures clearing house for all manner of commodity trading, especially — but not limited to — oil. .This is where it gets a bit tricky. More than 90% of the oil market is a paper market — that is, the vast majority of oil traders don’t actually produce barrels. They trade them on contract and play the arbitrage. And it’s no coincidence those contracts settle on the third Monday of the month, for physical delivery the following week. Which is why Credit Suisse imploded when it did, sending oil prices in a free fall..The sudden price moves were further compounded by automated, programmed selling that kicks in when prices hit certain thresholds. After that, computers call the shots. The result is the kind of pandemonium that kicked in this week — confirming the old adage: ‘buy on rumour, sell on news.’.Despite the hiccup, analysts still remain generally bullish on oil markets for the rest of the year although there is a wide discrepancy as major investment houses revisit price forecasts. An investment conference hosted by the Financial Times in Lausanne, Switzerland — ironically enough — heard a wide range of price targets, ranging from $140 to $45. .Goldman Sachs, which tends to be more reliable, revised its price target for Brent down from $100 to $94 in the second half of the year which would imply a WTI price of around $90 which is still a fairly bullish number..“Oil prices plunged despite the China demand boom given banking stress, recession fears, and an exodus of investor flows,” Goldman said in a note last week, as per Bloomberg. “Historically, after such scarring events, positioning and prices recover only gradually, especially long-dated prices.” .It may or may not be good news depending on which side of the ledger you’re on. Finance department officials would be elated for $90 but motorists will surely feel the pinch in summer driving season. That’s the difference between being a price taker and a price maker.
That’s why it’s called risky business. After crashing through technical support levels this week, benchmark crude prices recovered lost ground Wednesday after central banks around the globe stepped in to shore up failing financial institutions in the US and EU..North American benchmark West Texas Intermediate (WTI) was hovering just below $70 per barrel this morning after falling below $64 on Monday, its lowest in 15 months. European benchmark Brent — which originates in the Scottish North Sea — was back up above $75 after falling below $70 earlier in the week..Western Canadian Select, a bitumen blend that accounts for 70% of Alberta’s revenue, bounced back above $57 after falling below $45 earlier in the week. It typically trades at a 20-25% discount to WTI before it goes down the pipe to the Gulf Coast. That’s good news for the provincial treasury, which swings about $220 million into the red or black on every dollar up or down. In its budget earlier this month, the province is banking on $79 WTI to balance the books and post a modest surplus..The relative stability in the oil price come after central banks in Europe, the US, Japan and Canada stepped in to provide their respective banking systems with much needed liquidity after the imminent collapse of Credit Suisse and a proposed shotgun marriage with UBS. The former lost more than 75% of its value in less than a week..In the US, regulatory authorities steered a $30-billion rescue plan for First Republic Bank after the collapse of Silicon Valley Bank and the near-death of Signature earlier in the week. .But those are fairly small potatoes compared to Credit Suisse. What it lacked in retail customers it more than made up for as a futures clearing house for all manner of commodity trading, especially — but not limited to — oil. .This is where it gets a bit tricky. More than 90% of the oil market is a paper market — that is, the vast majority of oil traders don’t actually produce barrels. They trade them on contract and play the arbitrage. And it’s no coincidence those contracts settle on the third Monday of the month, for physical delivery the following week. Which is why Credit Suisse imploded when it did, sending oil prices in a free fall..The sudden price moves were further compounded by automated, programmed selling that kicks in when prices hit certain thresholds. After that, computers call the shots. The result is the kind of pandemonium that kicked in this week — confirming the old adage: ‘buy on rumour, sell on news.’.Despite the hiccup, analysts still remain generally bullish on oil markets for the rest of the year although there is a wide discrepancy as major investment houses revisit price forecasts. An investment conference hosted by the Financial Times in Lausanne, Switzerland — ironically enough — heard a wide range of price targets, ranging from $140 to $45. .Goldman Sachs, which tends to be more reliable, revised its price target for Brent down from $100 to $94 in the second half of the year which would imply a WTI price of around $90 which is still a fairly bullish number..“Oil prices plunged despite the China demand boom given banking stress, recession fears, and an exodus of investor flows,” Goldman said in a note last week, as per Bloomberg. “Historically, after such scarring events, positioning and prices recover only gradually, especially long-dated prices.” .It may or may not be good news depending on which side of the ledger you’re on. Finance department officials would be elated for $90 but motorists will surely feel the pinch in summer driving season. That’s the difference between being a price taker and a price maker.
