By Alan Bannister, executive director of energy products, CME Group
Events in the Middle East strongly influence price behavior in the Brent crude market and the recent instability in Iraq has caused some substantial price swings.
June 12 saw a three dollar rally as news broke that, having taken Mosul, rebels were progressing southward towards Baghdad. As their strength became apparent the proposal of disruption to the southern officials became real and prices continued to rally for another five days. From June 23 ,the 15 day series of declining prices began.
The timing of this reversal seemed premature because at this point the crisis in Iraq was far from resolved and fundamental traders may well have felt the higher prices were still justified, but the technical's were clear as the series of lower highs and lower lows began.
Baghdad did not fall, the southern oilfields were safe for now, Libya unexpectedly announced the resumption of exports, West African cargoes remained unsold and tight diesel margins in Europe restrained the appetite of the refiners.
Another significant trend gaining attention is the shift of volume in the Brent market to CME Group's Nymex Brent contract. Liquidity has been growing steadily since CME re-launched Nymex Brent at the beginning of 2013, with open interest now over 100,000 contracts and having achieved a record day of 151,235 contracts traded on July 15.
Looking to the future, the launch of the Shanghai crude oil contract will dovetail with the DME Oman Crude Oil contract. Traders with an interest in the Chinese crude markets have noted that the Shanghai contract will open up financial and physical arbitrage opportunities to DME Oman, which trades on CME Group’s Globex platform.
Thus traders may find it convenient to have their Nymex WTI, Nymex Brent and DME Oman crude oil positions together on one platform.
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