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

Related Articles

Encana to focus spending on four core shale assets in 2015

12/16/2014 Encana Corp., Calgary, reported plans to spend $2.7-2.9 billion on its capital budget with roughly 80% of this total directed towards four of what ...

Cenovus trims budget, slows oil sands work

12/16/2014 Cenovus Energy Inc., Calgary, is trimming its capital spending in response to declining crude oil prices and will slow development of some of its t...

MARKET WATCH: Oil prices continue falling awaiting economic statistics

12/16/2014 Oil prices on the New York market dropped in Dec. 15 trading following reports of supply disruptions in Libya and awaiting reports of economic stat...

MARKET WATCH: OPEC basket price closes below $59/bbl

12/15/2014 The average crude oil basket price for the 12 members of the Organization of Petroleum Exporting Counties closed below $59/bbl on Dec. 12 while cru...

TAEP: TPI still peaking, but ‘contraction unavoidable’ as oil prices fall

12/12/2014 The Texas Petro Index (TPI), a composite index based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Ene...

MARKET WATCH: NYMEX crude oil price extends slump

12/12/2014 Crude oil prices extended their slump on the New York market with a Dec. 11 settlement of less than $60/bbl for January, and prices continued downw...

US needs more data before ending crude export ban, House panel told

12/11/2014 Much more environmental impact information is needed before the US can reasonably remove crude oil export limits, a witness told a House Energy and...

Rosneft, Essar sign terms of oil supply agreement

12/11/2014 OAO Rosneft and Essar Energy PLC have signed key terms of an oil supply agreement in New Delhi. Rosneft said shipments to India may begin in 2015.

Barton introduces bill to remove US crude export limits


US Rep. Joe Barton (R-Tex.) introduced legislation that would remove US crude oil export limits that have been in place for nearly 40 years.

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts

On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.



Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.


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