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MARKET WATCH: Crude oil shrugs off bearish inventory report

Crude oil posted a gain of 1.1% Aug. 17, “shrugging off a bearish…inventory report” from the US Department of Energy, according to analysts in the Houston office of Raymond James & Associates Inc. “Moreover,” they said, “natural gas was able to break its four-session losing streak, finishing the day with a small gain.”

James Zhang at Standard New York Securities Inc., the Standard Bank Group, noted, “Oil fluctuated in a small trading band…. Oil products lagged crude in posting a small recovery despite the large gasoline inventory draw in the US, resulting in weaker product cracks and refining margins.”

Zhang added, “The [West Texas Intermediate] structure strengthened further on another week of inventory draws at Cushing.”

Looking to global markets, Zhang observed, “There was further disappointing economic data from the UK…, showing rising unemployment and weak retail sales. At its last meeting, MPC at Bank of England voted unanimously to keep the rate unchanged, at 0.5%. This echoes recent moves by most other central banks in the developed world to increase the provision of liquidity, with the [US Federal Reserve] promising 2 years of near-zero policy rates. These monetary policy stances have further squeezed the already low returns from cash and/or bonds in many developed nations.”

Zhang concluded, “We are not very confident about the recent recovery in risk-taking, as bond yields continue to move lower. Leading economic indicators suggest the global economy could disappoint expectations. Abundant liquidity and the search for return by investors seem to be holding up the values of risky assets.

“That said, the oil market is currently much more vulnerable to supply shocks than it has been over the last 2 years, due to much-reduced inventories. We do not see an imminent substantial fall in oil prices on relatively tight fundamentals reflected by a backwardated Brent market, but high volatility in the oil market is set to continue.”

Energy prices

The September contract for benchmark US light, sweet crudes gained 93¢ to $87.58/bbl Aug. 17 on the New York Mercantile Exchange. The October contract also gained, up 88¢ to $87.73/bbl. On the US spot market, WTI at Cushing, Okla., was up 93¢ to $87.58/bbl.

Heating oil for September delivery rose 2.9¢ to $2.96/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 1.65¢ to $2.87/gal.

The September contract for natural gas was up but only by a fraction of a cent, closing at $3.93/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., decreased 2¢ to $3.975/MMbtu.

In London, the October IPE contract for North Sea Brent rose $1.47 to $110.60/bbl. Gas oil for September gained $9 to $936.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased $1.46 to $106.88/bbl on Aug. 17.


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