MARKET UPDATE:  Oil prices bounce back to over $74 per barrel

By Eyo Nsima

Barely a few hours after the Organisation of Petroleum Exporting Countries, OPEC, had released its June Monthly Oil Market Report, MOMR, the prices of crudes bounced back to an average of $75 per barrel in the global market.

Specifically, the prices of Brent, OPEC basket and WTI rose to $74.05, $74 and $69.19 per barrel, from $73, $72 and $68 per barrel respectively.

Meanwhile, in the MOMR obtained by The Daily, www.thedaily-ng.com, OPEC disclosed that, “The OPEC Reference Basket (ORB) value declined in May, dropping by $8.31/b, or 9.9%, to stand at $75.82/b. All ORB component values declined alongside their respective crude oil benchmarks, which largely offset a rise in most official selling prices in all regions.

Crude oil futures prices extended their losses in May experiencing a heavy selloff. Market sentiment weakened due to renewed worries about an economic slowdown and re-emerging US banking sector concerns. Investor sentiment also came under additional pressure after the US Federal Reserve increased its key interest rate again. Selloffs from hedge funds and other money managers cut net long positions by about 120 mb, fueling the price decline. On a monthly average, the ICE Brent front-month contract fell by $7.67, or 9.2%, to stand at $75.69/b in May. The NYMEX WTI front-month contract fell by $7.82, or 9.8%, to an average of $71.62/b.

“DME Oman crude oil futures prices fell m-o-m by $8.70, or 10.4%, to settle at $74.78/b. Hedge funds and other money managers heavily cut their bullish positions in May after they were net buyers the previous month. This fueled price volatility and contributed to a drop in futures prices. Money managers turned bearish on the outlook for crude oil prices and rushed to close long positions that had been built in April, amid weakness in the broader financial market and uncertainty about the US debt ceiling talks, with a deal agreed in early June, and subdued Chinese economic data that weighed on investor sentiment.

“Over the month, money managers cut their futures and options net long positions by 23,245 lots, between the weeks of 2 and 30 May, or 7.9% of the total net long positions. The front end of major futures contracts ICE Brent, NYMEX WTI and DME Oman weakened in May compared with April, signalling a deteriorating economic and oil demand outlook.”