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ISSUES....
Inside, confidential and off the recordArabian oil vs Argus Index
ENERGY PRICES ARE QUITE WEAK as they move in direct contravention to the movement of the US dollar… not minute by minute, nor perhaps even hour by hour, but certainly in terms of whole days and more clearly over whole weeks.
Over the course of the past week, the US dollar as measured by the EUR
has risen from 1.5035 to 1.4735, or almost exactly 2% while front month WTI crude has fallen from 3.5%. Two weeks ago, the dollar was trading 1.4935 vs. the EUR, or 1.3% lower than this morning, while nearby WTI was trading $78.47, or 1.6% higher. Thus, as goes the dollar, so in contravention goes crude oil, although not perfectly in percentage terms, but closely and sufficiently so to be of interest.
Much is being made of the Saudi decision not to price its crude directly against the WTI futures contract, as announced last week, but to price it instead relative to the Argus Sour Crude Index. We thought, when the decision was announced, that far too much was being made of it, but we awaited the comments from our old friend, Dr. Philip Verleger, whom we were certain
would comment upon this decision in his weekly missive on the oil markets. We were not wrong, for that is precisely what Dr. Verleger spent most of his
time upon in his comments.
Further, as we thought, he downplayed the decision, noting that the decision to use WTI was made only when Alaskan North Slope crude stopped being delivered, via a pipeline across Panama to the Gulf.
The Saudi’s priced their crude relative to Alaska North Slope (ANS) crude because it and theirs were so similar in quality. When ANS was kept on the West coast and no longer was brought to the Gulf of Mexico, the Saudis lost this as a “marker” and turned to WTI as the next closest pricing mechanism, relying upon “basis” spreads against the WTI futures to price their crude production.
As Dr. Verleger notes Saudi Arabia is changing its reference because new fields and spot markets with sufficient liquidity have developed. The shift is Arabia would no doubt so the same in Europe if a sour benchmark were available.
If the NYMEX’ leadership is wise… and certainly it is… then it will move to develop other crude futures types that will better serve the world market than the rather tiny, and sometimes too tightly controlled, WTI deliverable into Cushing, Oklahoma. WTI served its term in office well, but now some other “marker” will eventually take its place. It is but a matter of time:
Dec WTI down 256 77.17-22
Jan WTI down 245 77.81-86
Feb WTI down 237 78.44-49
Mar WTI down 233 78.96-01
Apr WTI down 231 79.43-48
May WTI down 230 79.89-94
OPEC Basket $75.53 10/28
Henry Hub Nat-gas $4.12
- Dennis Gartman/ The Gartman Letter 11/ 02 / 09
- For more on interesting comments, you can subscribe to The Gartman Letter by contacting Dennis Garthman: Phone - Fax: or email : dennis@thegartmanletter
ISSUES.... 11/02/09
ISSUES.... Inside, confidential and off the record
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