Crude Oil Price May Have Been Speculated

Crude oil price may have been speculated base on a report from US the WTI crude oil historical ATM implied volatility has fallen from a peak at 109% in December 2008, to 47% this week. It may hover around these levels in the short to medium-term as the summer lull continues. With lower volatility the incentive to raise production levels have risen. This could maintain pressure on crude oil prices given the still weak macroeconomic fundamentals.

With lower crude oil volatility, producers’ total marginal cost of producing the extra barrel of oil could decrease. Marginal cost is composed of direct marginal cost and an opportunity cost of producing now rather then later. With lower volatility it is believe the opportunity cost also decline. But apart from lower volatility, a continued drawdown of crude oil inventory in the US might add to the incentive to produce more crude oil. US gulf coast crack spread has risen from $3.142/bbl on July 13th to $6.785/bbl yesterday,creating further incentive for increased refinery production. This should result in a drawdown of crude oil inventories. Over the past few weeks we have seen a shift from a buildup in crude oil inventory in the US to a build-up in refined product inventory.



However, even the decline in crude oil inventory is not an indication of a rise in demand. US refined product demand remains weak and inventories high. As a result we still see the upside of crude oil prices limited above USD69/bbl, so need to understand here is crude oil inventory low may because it keep in the refinery but most of the report only written on crude oil inventory is low to speculated the oil price.

Be careful when you what to invest in oil base service company in Bursa Malaysia because oil price may drop when all the refinery is in high inventories.

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