Commodity Corner: WTI, Brent Futures Plummet

- Commodity Corner: WTI, Brent Futures Plummet

Monday, August 08, 2011
Rigzone Staff
by Matthew V. Veazey

On the first trading day after Standard & Poor's downgraded the United States' long-term credit rating from AAA to AA+, the WTI settled at its lowest point in nearly nine months.

Light sweet crude oil lost $5.57 to end the day at $81.31 a barrel—just six cents higher than the Nov. 23, 2010, settlement price. Concerns that the U.S. is slipping into a double-dip recession have dampened expectations about oil demand. Equity markets also sustained significant losses Monday. The Dow Jones Industrial Average fell 5.55 percent while the S&P 500 declined nearly 6.7 percent.

The Brent futures price also plunged Monday but to a somewhat more modest degree than the WTI. It ended the day at $103.47, marking a $5.63 decline from Friday.

The WTI peaked at $85.73 and bottomed out at $80.17 while the Brent traded within a range from $102.88 to $106.92.

Also reflecting fears about slumping demand was the price of gasoline for September delivery, which lost 4.1 percent to end the day at $2.69 a gallon. Front-month gasoline traded within a range from $2.80 to $2.67 Monday.

September natural gas remained relatively steady Monday, losing less than one cent to settle at $3.935 per thousand cubic feet. Natural gas peaked at $3.97 and bottomed out at $3.855.

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S&P Launches Oil Hedged Index

S&P Launches Oil Hedged Index

Standard & Poor's

S&P Indices announced Wednesday the launch of the S&P 500 Oil Hedged Index, calculated as a combination of a long S&P 500 position overlaid with long positions in NYMEX Oil futures and ICE Brent Crude Oil futures.

The S&P 500 Oil Hedged Index seeks to reduce the effects of a rise in inflation, as reflected in higher oil prices, or against declines in the value of the U.S. Dollar by simulating the returns of an investment strategy that is long the S&P 500 and hedged against changes in the U.S. Dollar, as measured by oil prices. By holding long oil futures contracts, investors may benefit from an increase in oil prices or potentially sustain losses when the opposite occurs.

The Index uses NYMEX Crude Oil and ICE Brent Crude Oil futures as a hedge. The hedge position has 50% in NYMEX Crude Oil and 50% in ICE Brent Crude Oil at the close of each rebalancing day. The hedge only protects against adverse movements in the relative value of the U.S. Dollar, as expressed in the dollar price of oil. Stock market risk is not hedged in any way.

"Investors are increasingly looking for alternative methods to hedge against inflationary risk during this period of global economic uncertainty," says Alka Banerjee, Vice President at S&P Indices. "We would expect funds that replicate returns on the S&P 500 Oil Hedged Index to provide investors with a means to mitigate the potential negative impact on an investor's portfolio resulting from a rise in inflation or decline in the U.S. Dollar."

The S&P 500 Oil Hedged Index belongs to the S&P U.S. Index family. Other closely related S&P indices include British Pound, Canadian Dollar, Euro, Yen, and Gold hedged S&P 500 indices.

S&P Indices, a world leading index provider, maintains a wide variety of investable and benchmark indices to meet an array of investor needs. Over $1.25 trillion is directly indexed to Standard & Poor's family of indices, which includes the S&P 500, the world's most followed stock market index, the S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, the S&P Global BMI, an index with approximately 11,000 constituents, the S&P GSCI, the industry's most closely watched commodities index, and the S&P National AMT-Free Municipal Bond Index, the premier investable index for U.S. municipal bonds.

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Commodity Corner: Crude Tumbles on S&P Debt Outlook

Commodity Corner: Crude Tumbles on S&P Debt Outlook

Monday, April 18, 2011

Rigzone Staff

by Saaniya Bangee

Front-month crude futures plummeted Monday after Standard & Poor (S&P) changed its outlook for U.S. debt from stable to negative. The shift in outlook has increased concerns of the U.S. economy's stability and cuts in government spending.

Oil prices fell by $2.54 Monday, settling at $107.12 a barrel on the New York Mercantile Exchange (NYMEX). Prices fluctuated between $106.54 and $109.44. The S&P move came on the possibility that policymakers may not reach an agreement on how to address long-term fiscal pressures.

Over the weekend, China's central bank announced it would increase bank reserve requirements. In its fourth attempt this year, China hopes to control inflation and curb energy demand. Following the U.S., China is the world's second largest energy consumer.

Additionally, Saudi Arabia's Oil Minister Ali al-Naimi said Sunday that the kingdom has reduced oil production by 800,000 barrels due to lack of demand. Crude output was 8.3 million barrels a day last month, compared to February's 9.1 million barrels a day. Naimi anticipates an increase in April production.

On Monday, the greenback rose against the euro and other currencies further pressuring prices. The euro fell on concerns that Greece will have to restructure its debt. A stronger dollar makes oil more expensive, less attractive to foreign buyers.

May natural gas prices fell for a second day Monday, settling nearly seven cents lower at $4.14 per thousand cubic feet. Analysts do not foresee any near-term pressure increasing prices due to near-average storage and below-average prices. The intraday range for natural gas was $4.087 to $4.27 per thousand cubic feet.

Likewise, gasoline futures fell 1.1 percent, peaking at $3.29 before bottoming out at $3.23. Gasoline priced ended Monday's trading session at $3.25 a gallon.