Crude moves away from stocks and currencies

8 December 2009

Crude oil prices are beginning to trade in line with demand fundamentals and are more immune to fluctuations in stocks and currencies, research shows.

Speaking to Reuters, Peter Beutel, president of the Cameron Hanover oil consultancy in Connecticut, said in recent weeks crude and associated products such as heating oil have been less susceptible to trading patterns in stocks and currencies, with prices becoming more influenced by demand fundamentals.

"It's starting to decouple - there is a widening contango on US crude, which is starting to come back into its own economics and looking less to exogenous factors," he explained.

Contango is the term used to describe circumstances where the price of buying a commodity in the future is higher than the price of buying it immediately. It is commonly viewed as a sign of strength in a market and is contrasted by backwardation, where futures contracts are cheaper than their spot-price equivalent.

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