MARKET WATCH: Rising inventories push down oil prices

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 23 -- Oil prices continued falling Sept. 22 in the New York futures market as traders shrugged off the weakening dollar and focused instead on a government report of unexpected increases in US inventories of crude, gasoline, and distillate fuel.

“The broader [equity] market fared no better (the Dow Jones Industrial Average fell 0.2% while Standard & Poor's 500 Index gave up 0.5%) after downbeat earnings forecasts for technology companies disappointed investors and a drop in US home prices provided yet another signal that the economic recovery might be faltering,” said analysts in the Houston office of Raymond James & Associates Inc.

Natural gas prices continued to rise, however, on weather forecasts of a strengthening Caribbean storm. Gas prices were still climbing in early trading Sept. 23.

Oil prices were weaker in early trading, however, “with the stronger dollar…dragging front-month West Texas Intermediate back below $74/bbl,” said analysts at Standard New York Securities Inc., part of the Standard Bank Group. “Although the inventory overhang in crude oil and many of its products makes it hard to get too bullish over the short term, its well worth noting that crude oil prices are still well within the range they’ve occupied since mid-2009, with front-month WTI continuing to look very comfortable in the $70-80/bbl range.”

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “We expect [crude] prices to find support from the weakening dollar, which declined 0.8% on speculations that the Federal Reserve Bank will infuse more cash into the economy.”

US inventories
The Energy Information Administration said commercial US crude inventories increased 1 million bbl to 358.3 million bbl in the week ended Sept. 17. The Wall Street consensus was for a decline of 1.8 million bbl. Gasoline stocks climbed by 1.6 million bbl to 226.1 million bbl, opposite market expectations for a 300,000 bbl decline. Distillate fuel inventories gained 300,000 bbl to 174.9 million bbl, outstripping market expectations of a 100,000 bbl increase (OGJ Online, Sept. 22, 2010).

Crude inventories were expected to decline last week primarily because Enbridge Energy Partners LP’s 670,000 b/d 6A crude pipeline was shut-in Sept. 9 due to a leak. However, the pipeline was repaired and reopened Sept. 17 (OGJ Online, Sept. 20, 2010).

EIA reported Sept. 23 the injection of 73 bcf of natural gas in US underground storage in the week ended Sept. 17, well below the consensus estimate of an 87 bcf input. The latest injection increased working gas in storage to 3.34 tcf. This is down 175 bcf from the comparable week in 2009 but 195 bcf above the 5-year average.

Olivier Jakob at Petromatrix, Zug, Switzerland, complained of “a general myth” on Wall Street the second round of “quantitative easing” of the economy, or QE2, is bullish for oil through the lower dollar index. “Our view is that QE is in reality bearish for oil,” Jakob said. “First, QE is being applied because of a weak economy and it is expected that the Fed will slash its US gross domestic product growth outlook for 2011. Low GDP is not good for oil demand.”

Second, he said, “Interest rates at zero and a contango structure transforms any oil storage tank into a money printing machine (and this is real dollars, not the sort coming from the Fed’s printing machine). This results in extreme high levels of oil stocks, which act as a buffer and prevent oil rallies [from gathering] steam.”

Jakob said, “Third, the contango structure that is created by the high level of stocks kills all the economics of holding length in WTI indices as an asset class. While investors that have bought gold during QE1 have done very well, investors [who] bought into oil during QE1 are in the red as they just threw money out to the contango. If new investors buy oil for QE2 it is likely that those that have bought oil into QE1 will be happy to offload their positions to them as they learned the hard way the workings of the contango. Hence while there can be some hype buying into WTI for QE2, both from a fundamental and from a financial basis QE2 should provide a negative return on investments in WTI indices.”

QE1 was the Fed’s unprecedented purchase of agency debt to prop up the housing market and credit facilities for big banks, Jakob said (OGJ Online, Sept. 20, 2010).

Meanwhile, the Sept. 21 statement from the Federal Open Market Committee, the Fed’s policy-making arm, that it is “prepared to provide additional accommodation if needed” to support the economic recovery is maintaining pressure on the US dollar. “But this only means that we will probably go deeper into the currency and protectionist wars,” Jakob charged. “Congress is expected to vote on a Chinese currency bill next week, and if Japan should not intervene today due to the meeting between Obama and the Japanese prime minister, we will nonetheless be ready for further intervention in days to come if the yen continues to rise. The dollar is also trading below the Swiss franc, and Brazil has been quite ‘voiceful’ over the last few days that it stands also ready to intervene,” he said.

Energy prices
The new front-month November contract for benchmark US light, sweet crudes dropped 26¢ to $74.71/bbl Sept. 22, on the New York Mercantile Exchange. The December contract fell 35¢ to $76.30/bbl. On the US spot market, WTI at Cushing, Okla., was down 66¢ to $72.86/bbl. Heating oil for October delivery declined 1.29¢ to $2.11/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month dropped 1.82¢ to $1.90/gal.

The October natural gas contract gained 4.7¢ to $3.97/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., was up 2¢ to $4.02/MMbtu.

In London, the November IPE contract for North Sea Brent crude dropped 47¢ to $77.95/bbl. Gas oil for October lost $10.25 to $670/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes fell 93¢ to $74.41/bbl.

Contact Sam Fletcher at

Related Articles

Market watchers' adjustments offer hints of recovery

01/26/2015 Because markets look ahead, changes in standard forecasts offer potentially important signals during storms such as the one now pummeling the oil a...

A message from Oil & Gas Journal


An important transition occurred during production of this issue of Unconventional Oil & Gas Report.

MARKET WATCH: Crude oil prices down as US government shutdown lingers

10/16/2013 The front month crude oil contract on the New York market dropped to the lowest level on Oct. 15 since it last settled below $100/bbl on July 2.

MARKET WATCH: Crude oil traded higher amid Washington budget talks

10/15/2013 Crude oil futures prices traded higher on the New York market Oct. 14 as US lawmakers reported progress in ongoing efforts toward reaching an agree...

MARKET WATCH: Oil prices close down at end of volatile week

10/14/2013 The NYMEX November crude contract lost 99¢ on Oct. 11, settling at $102.02/bbl ending a week of volatile trading. The December contract fell 83¢ to...

MARKET WATCH: Oil prices continue falling as Syria risk apparently lessens

09/17/2013 Oil futures prices reached their lowest level in 3 weeks with the Sept. 16 closing while the US and Russia agreed to terms under which Syria is exp...

MARKET WATCH: Oil prices rebound slightly awaiting US decision on Syria

09/04/2013 Oil prices climbed on New York and London markets Sept. 3 in response to comments indicating key US lawmakers will support US President Barack Obam...

MARKET WATCH: Syria crisis puts pressure on some oil markets

08/27/2013 Crude oil prices in world markets edged upwards Aug. 26 on reports that “tolerance of the West for what’s taking place in Syria appears to be comin...

MARKET WATCH: Oil futures rise Aug. 23 on Lebanon violence

08/26/2013 Oil futures prices rose on the New York market Aug. 23, and traders attributed the increase to escalating violence in the Middle East that added to...
White Papers

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected