Crude oil trading resulted in futures for this raw material and source of energy experiencing a sharp drop in price on the first session of the year.
On Jan. 2, the February contract for light, sweet crude settled 3 percent lower, at $95.44 per barrel on the New York Mercantile Exchange, according to The Wall Street Journal. At the end of the session, the future had fallen to its lowest price since Dec. 2.
This robust decline represented the largest daily drop that the contract experienced since November 2012, Reuters reported. Brent crude also dropped substantially, finishing the session down $3.02 a barrel at $107.78, which represented the most significant one-day decline since June.
Individuals who take part in online trading of oil might benefit from knowing that the sharp price declines that the commodity experienced on Jan. 2 were attributed to events that were related to the supply-demand fundamentals of the energy source, according to the news source.
Various factors impact supply-demand fundamentals
One major factor that was cited as having an impact on the price of oil was a rising value for the U.S. dollar, The Associated Press reported. On Jan. 2, the euro had fallen to $1.3633, down from $1.3663 late in the previous day in New York.
In addition, the U.S. dollar index, which compares the value of the greenback to various other currencies, rose to its highest value in two weeks during the day, according to Reuters. The sharp appreciation in the greenback was attributed to data indicating improvement in the American economy.
Reports pointing to both stronger manufacturing activity and also a decline in the number of initial applications for jobless benefits helped to provide upward pressure for the dollar, the media outlet reported.
Dollar’s impact on oil
When the greenback appreciates, it makes it more expensive for market participants using other currencies to purchase contracts that are denominated in the dollar. As a result, a rising value or this particular currency can help to suppress demand for commodities including oil.
Another factor that was cited as having an influence on the value of crude oil was an announcement made by Libya’s National Oil Corp. that after the resolution of a recent strike, production is expected to start up again at the El Sharara field within a matter of days, according to Reuters.
The oil output of the North African nation has fallen sharply over the last several months, declining from 1.4 million barrels per day in July to 250,000 BPD currently, the media outlet reported. Many different oil plays in the nation have been operating far below potential since the nation’s civil war in 2011. The country’s production of the commodity could rise by 300,000 BPD as a result of El Sharara becoming functional once again.
“While recent announcements of a similar nature have failed to materialize and the situation in the east of the country remains in a deadlock, the potential of additional sweet crude supplies are serving to weigh further on the Brent market,” analysts at Vienna-based JBC Energy wrote in a report, according to the news source.
These market experts were certainly not the only ones who noted the impact of the news about production in Libya returning, as Bill Baruch, senior market strategist at Chicago-based iitrader.com, provided similar statements to Reuters.
“Really what’s moving the market back down is Libya back online,” Baruch told the news source. “We didn’t expect them to be back until the end of Q1.”
Markets respond to stockpile data
In addition to the rising dollar and production in the North African nation being credited for pushing oil lower, market sources told the media outlet that a report released by industry information provider Genscape, which revealed a substantial increase in oil supplies at a key location, also contributed to the sharp depreciation in the price of the commodity.
The document revealed that Cushing, Okla., which is crucial for the settlement of many oil futures contracts, experienced an increase in supplies of 1 million barrels.
Also, it was reported on Jan. 2 that for four weeks in a row, the inventories of U.S. crude have declined, but the continued decreases have largely been attributed to refineries lowering their supplies to make use of tax benefits, Dominick Chirichella, oil analyst for the Energy Management Institute, told The Wall Street Journal.
“Everybody recognizes that most of the crude oil draws we’ve seen over the last month or so has been really for accounting or tax reasons,” he told the news source.
Individuals who want to make money by taking part in online trading of oil might benefit from observing the sharp decline that the commodity experienced on Jan. 2, and how this substantial depreciation was tied to news events that provided updates on the situation in terms of supply and demand.
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