MARKET WATCH: Oil prices rise on hopes of federal stimulation of economy

Oil prices rose modestly Aug. 22 with crude up 0.6% in the New York market as anxious traders found what they hoped for in the minutes of the latest Federal Reserve meeting—indication a third effort at quantitative easing may come soon if the economy doesn't improve faster.

Minutes of the July 31-Aug. 1 meeting of the Federal Open Market Committee were released Aug. 22 and showed several members thought more monetary stimulus would be needed fairly soon unless economic activity improved. Market optimism was soon blunted, however, when St Louis Federal Reserve Pres. James Bullard said US economic data has strengthened since the meeting, and immediate action may not be warranted.

“It’s perhaps worth noting that previous Fed easing measures have generally happened when the markets were under stress. This time, the Standard & Poor’s 500 Index is back around the highest it’s been in 4 years while commodity prices are stabilizing and recovering rather than teetering on the edge of free-fall,” said Leon Westgate at Standard New York Securities Inc., the Standard Bank Group. “It will be interesting to see therefore how much impact any easing has this time round, assuming of course it happens at all.”

Meanwhile, the Hong Kong and Shanghai Banking Corp.’s Chinese Flash Manufacturing Purchasing Managers Index (PMI) released overnight deteriorated to 47.8 in August from 49.3 in July, “suggesting the Chinese economy is continuing to struggle badly,” Westgate reported. However, investment markets apparently assume the Chinese will embark on further easing measures of their own, he said.

Commodity and equity prices were down in early trading Aug. 23 after the US Department of Labor reported applications for unemployment benefits increased by 4,000 last week to 372,000 new filings, indicating possibly a slower rebound in August than in July. Major economic indexes in Germany, France, Greece, and Spain also were down.

On the up side, however, the Department of Commerce reported US new-home sales increased 3.6% to a seasonally adjusted annual rate of 372,000—the same as in May, which was the highest since April 2010.

US inventories

The Energy Information Administration reported the injection of 47 bcf of natural gas into US underground storage in the week ended Aug. 17, up from Wall Street’s consensus for an input of 40 bcf. That brought working gas in storage to 3.308 tcf, up 423 bcf from the comparable period in 2011 and 357 bcf above the 5-year average.

EIA earlier reported commercial US inventories of crude fell 5.4 million bbl to 360.7 million bbl in the same week, far exceeding the Wall Street consensus for a draw of 300,000 bbl. Crude stocks remain above average for this time of year, however. With end of the summer driving season quickly approaching, gasoline inventories dropped 1 million bbl to 202.7 million bbl last week, less than the 1.4 million bbl decline analysts expected. Both finished gasoline and blending components decreased. Distillate fuel stocks increased by 1 million bbl to 125.2 million bbl, exactly as the market anticipated. Nevertheless, distillates are still below average for this period (OGJ Online, Aug. 22, 2012).

In Houston, analysts at Raymond James & Associates Inc. said, “Combining crude, gasoline, and distillates, inventories fell by 5.4 million bbl [last] week, compared with the consensus forecast for a draw of 700,000 bbl. The large drop in total inventories was primarily driven by a fall in petroleum imports. Total petroleum demand was down 6.4% from the previous week. Refinery utilization remains high amid the summer driving season but decreased from 92.6% to 91.2%. Cushing, Okla., inventories were unchanged week-over-week. Total days of supply actually increased 2.6 days week-over-week and are 1day above year-ago levels.”

Energy prices

The new front-month October contract for benchmark US sweet, light crudes rose 42¢ to $97.26/bbl Aug. 22 on the New York Mercantile Exchange. The November contract increased 38¢ to $97.55/bbl. On the US spot market, West Texas Intermediate at Cushing climbed 58¢ to match the front-month crude’s $97.26/bbl closing in the futures market.

Heating oil for September delivery inched up 0.44¢ to $3.13/gal on NYMEX. Reformulated stock for oxygenate blending for the same month was up 3.9¢ to $3.11/gal.

The September natural gas contract recouped 5.1¢ to $2.83/MMbtu on NYMEX, spurred by Tropical Storm Isaac that is expected to strengthen to a Category 1 hurricane by Aug. 24. The storm was projected to head toward Florida as a hurricane by Aug. 27, but the US National Hurricane Center in Miami said some forecast models show it could go further west into the Gulf of Mexico. On the US spot market, gas at Henry Hub, La., continued its rally, up 3.3¢ to $2.82/MMbtu.

In London, the October IPE contract for North Sea Brent advanced 27¢ to $114.91/bbl. Gas oil for September lost $3.75 to $985/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes dropped 8¢ to $112.20/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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