MARKET WATCH: Possible early end of Fed stimulus shakes markets

Oil prices and other commodities fell Feb. 20, with the front-month crude contract dropping 2.3% in the New York futures market among unconfirmed rumors a troubled commodity hedge fund was liquidating.

Commodity market losses pulled down equity stocks with the Oil Service Index down 2.6% and the SIG Oil Exploration & Production Index dropping 3.3%.

Analysts at Standard New York Securities Inc., the Standard Bank Group, reported broad-based liquidation of commodity holdings in late trading Feb. 20 “as the Federal Open Market Committee (FOMC) minutes revealed that a growing number of Federal Reserve members were contemplating an earlier end to quantitative easing.” January minutes of the FOMC, the policy-making arm of the Federal Reserve System, earlier implied the Fed likely would maintain its $85 billion monthly bond-buying stimulus plan until the US labor market improved. However, Standard Bank analysts said the latest minutes published Feb. 20 indicate “more members are now growing concerned about the costs of this quantitative easing and are considering a tapered end to the Fed’s purchases” regardless of the labor market’s performance. That, they said, introduced “an additional element of uncertainty” into markets.

Markets also came under “heavy pressure overnight and into this morning, with a weaker euro and weaker equity markets adding to the slump during London trade. All eyes will be on how the US reacts,” Standard Bank analysts said.

In other news, the US Department of Labor reported the number of new applications for unemployment benefits jumped by 20,000 to a seasonally adjusted increase of 362,000 last week, raising the progressive 4-week average to the highest level in 6 weeks.

There were 5.6 million US residents who received unemployment benefits in the week ended Feb. 2, the latest period calculated.

US inventories

The Energy Information Administration said Feb. 21 commercial US crude inventories escalated by 4.1 million bbl to 376.4 million bbl in the week ended Feb. 15, well above Wall Street’s consensus for a 2 million bbl gain. Gasoline stocks dropped 2.9 million bbl to 230.4 million bbl in the same period, outstripping analysts’ outlook for a 900,000 bbl decline. Finished gasoline inventories increased while blending components decreased. Distillate fuel inventories fell 2.3 million bbl to 123.6 million bbl, below market expectations of 1.8 million bbl loss.

EIA also reported the withdrawal of 127 bcf of natural gas from US underground storage in the week ended Feb. 15, up from Wall Street’s consensus for a 124 bcf pull. That left 2.4 tcf of working gas in storage, down 242 bcf from a year ago but 361 bcf above the 5-year average.

Imports of crude into the US increased 176,000 b/d to 7.7 million b/d last week. In the 4 weeks through Feb. 15 imports averaged 7.7 million b/d, which was 1.1 million bbl less than in the comparable period in 2012. Gasoline imports last week averaged 505,000 b/d while distillate fuel imports averaged 294,000 b/d.

Input of crude into US refineries was down 134,000 b/d to 14.2 million b/d last week with units operating at 82.9% of capacity. Gasoline production increased to 8.9 million b/d as distillate fuel production decreased to 4.3 million b/d.

Energy prices

The March contract for benchmark US sweet, light crudes fell $2.20 to $94.46/bbl Feb. 20 on the New York Mercantile Exchange. The April contract dropped $1.88 to $95.22/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., followed the front-month futures contract down $2.20 to $94.46/bbl.

Heating oil for March delivery continued declining, down 2.43¢ to $3.16/gal on NYMEX. Reformulated stock for oxygenate blending for the same month lost 6.17¢ to $3.06/gal.

The March natural gas contract, however, inched up 0.7¢ to $3.28/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., escalated 8.5¢ to $3.34/MMbtu.

In London, the April IPE contract for North Sea Brent declined $1.92 to $115.60/bbl. Gas oil for March decreased $3.75 to $996/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes continued to retreat, down 34¢ to $113.28/bbl.

Contact Sam Fletcher at samf@ogjonline.com.

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