MARKET WATCH: Fed plan, Muslim turmoil raise oil prices

Crude oil prices kept climbing with the front-month crude contract temporarily topping $100/bbl Sept. 14 before closing at $99/bbl on the New York market. Crude appeared to be holding in that range in early trading Sept. 17, with the US dollar still near a 4-month low against the euro.

The Federal Reserve System’s plan to keep interest rates at record lows through mid-2015 while buying $40 billion of mortgage securities each month until the economy improves will keep downward pressure on the dollar’s value and drive oil prices up, analysts said (OGJ Online, Sept. 14, 2012).

Escalating turmoil in countries with large Muslim populations over a film seen as ridiculing that faith also supports higher oil prices. “Tensions ratcheted up in North Africa and the Middle East with protests in Egypt, Libya, and Yemen, all of which could potentially lead to supply disruptions,” said analysts in the Houston office of Raymond James & Associates Inc.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, reported, “We could see some upside [to oil prices] today as focus returns to Iran, amid a US-led mine-clearing exercise in the Persian Gulf intended as a show of force and a commitment to US allies in the region.”

Ground also noted net speculative length for front-month crude in the New York market resumed its climb last week. “This puts net speculative length as a percentage of open interest at 11.8%, well above the 5-year average of 6.4%. This is indicative of a market that is considerably overstretched and vulnerable to correction,” he said.

However, Ground said, “This is nothing new; net speculative length as a percentage of open interest has averaged 10.1% this year so far. In addition, we feel that the situation in Iran, together with the Fed’s additional monetary accommodation, should keep the crude oil market well supported for now.”

Energy prices

The October contract for benchmark US light, sweet crudes was up 69¢ to $99/bbl Sept. 14 on the New York Mercantile Exchange. The November contract climbed 70¢ to $99.33/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased 69¢ to $99/bbl.

Heating oil for October delivery increased 2.82¢ to $3.24/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 5.34¢ $3.02/gal.

The October natural gas contract, however, fell 9.4¢ to $2.94/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 6.7¢ to $2.90/MMbtu.

In London, the new front-month November IPE contract for North Sea Brent climbed 78¢ to $116.66/bbl. Gas oil for October rose $9 to $1,013.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased $1.40 to $114.87/bbl. So far this year, OPEC’s basket price has averaged $110.26/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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