MARKET WATCH: Fed's gloomy economic outlook pulls down energy prices

Energy prices resumed their downward trend Sept. 21 after the US Federal Reserve Bank announced its third attempt in 3 years to stimulate the economy, only to see equity prices tumble as it warned the global economy will remain at risk for years. The price drop rippled through Asian markets overnight with equities and energy commodities still in retreat when US markets reopened this morning.

As expected, the Fed said it will implement its “Operation Twist” by selling $400 billion worth of treasury notes that mature within a few years and using that revenue to buy treasury notes that will mature 6-30 years from now. Its strategy is to reduce long-term interest rates—already at record lows—to make long-term loans cheaper for consumers and corporations. Named for the popular twist dance in 1961 when that plan originated, it is intended to flatten the yield curve, promote capital flow, and strengthen the dollar by using open market operations to shorten the maturity of the public debt (OGJ Online, Sept. 19, 2011).

But then “the Fed's rhetoric became decidedly more bearish, adding, ‘there are significant downside risks to the economic outlook, including strains in global financial markets,’” analysts in the Houston office of Raymond James & Associates Inc. “Spooked by this news, the Standard & Poor’s 500 index sold off into the close, ending down 3%. Even after a bullish inventory report, crude was unable to buck the trend and ended the day in the red, falling 1.1%. Natural gas also followed suit ending the day down 1.3%.” Energy stocks underperformed the broader market with the Oil Service Index and SIG Oil Exploration & Production Index declining 4.6% and 3.5%, respectively.

“It looks like we're in store for another ugly day after disappointing manufacturing data out of both Europe and China (both falling below the 50 mark, signaling economic contraction) this morning,” Raymond James analysts surmised. Even before the New York market opened, the S&P was down 2%, the price of crude dropped 4%, and natural gas declined another 1%.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “It is difficult to portray how an ‘Operation Twist’ could provide significant support to assets.” It may even be “slightly dollar positive,” he said.

James Zhang at Standard New York Securities Inc., the Standard Bank Group observed, “The market ‘sold on the fact’ [of the anticipated action by the Fed] and appeared to be convinced that the Fed has run short of options. There have already been talks of another round of quantitative easing from the Fed. However, there will be plenty of political hurdles. More importantly, the market has grown much more skeptical over the effectiveness of further monetary easing.”

US inventories

The Energy Information Administration reported the injection of 89 bcf of natural gas into US underground storage in the week ended Sept. 16, below the Wall Street outlook for a 92 bcf injection. The latest addition boosted working gas in storage to more than 3.2 tcf, down 129 bcf from the year-ago level and 35 bcf below the 5-year average.

EIA earlier said the US inventory of commercial crude plummeted 7.3 million bbl to 339 million bbl in the week ended Sept. 16, far surpassing Wall Street’s consensus for a 1.3 million bbl draw. Gasoline stocks bumped up by 3.3 million bbl to 214.1 million bbl, above average for this time of year and well beyond the increase of 1.4 million bbl that the market expected. Distillate fuel inventories decreased 900,000 bbl to 157.6 million bbl, opposite analysts’ outlook for a 1 million bbl gain (OGJ Online, Sept. 21, 2011).

Raymond James analysts noted, “Last week ended the release program from Strategic Petroleum Reserves as it reached the targeted 30 million bbl. The demand picture rebounded from [the previous] week, with total petroleum demand rising 2% [in the week ended Sept. 16], down 2.2% year-over-year.” Crude inventories in Cushing, Okla., “fell for the eighth straight week,” they reported.

Concerning the plunge of US crude inventories, Jakob said, “At face value this should be taken on the positive side, but given the deterioration of the product cracks the lower crude stocks need to be weighted with a risk of lower future refining demand. The crude oil stock draw was concentrated on the US Gulf Coast. Tropical Storm Lee had resulted in lost output of 5 million bbl and that can explain part of the low stocks reported” by EIA. But EIA’s divergence from the numbers reported by the American Petroleum Institute for gulf coast storage “is huge,” he said.

In other news, the 4-week average of imports of Saudi Arabian crude into the US was up 320,000 b/d from the comparable period a year ago “and at the highest level since December 2008,” Jakob said.

Imports of crude into the mid-western US, including Cushing, “are also on the high side and trending towards the record high set in June of last year,” he said. “If crude imports are kept at current levels, we expect to see the stocks in Cushing starting to rebuild during the fourth quarter.”

US gasoline stocks “remain comfortable given the poor demand,” said Jakob. However, he said, “The US has relied on exports to balance its distillates supply, and if the global economy continues to cool off, those exports could start to be under pressure.”

Energy prices

The new near-month November contract for benchmark US sweet, light crudes retreated from an intraday high of $87.99/bbl to close the market’s regular session at $85.92/bbl, down $1 Sept. 21 on the New York Mercantile Exchange. The December contract dropped 99¢ to $86.18/bbl. On the US spot market, West Texas Intermediate at Cushing was down 97¢, also closing at $85.92/bbl.

Heating oil for October delivery declined 2.74¢ to $2.91/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month lost 3.49¢ to $2.67/gal.

The October contract for natural gas fell 6.8¢ to $3.73/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., decreased 1.9¢ to $3.80/MMbtu.

In London, the November IPE contract for North Sea Brent retreated 18¢ to $110.36/bbl. Gas oil for October increased $6.25 to $945.25/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes was up 70¢ to $108.99/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

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
Available Webcasts


Operating a Sustainable Oil & Gas Supply Chain in North America

When Wed, Oct 7, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.

register:WEBCAST


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


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