MARKET WATCH: Oil prices climb after Fed’s announcement

Crude oil futures rose on Sept. 18 after the US Federal Reserve announced plans to continue an economic stimulus program in a move that surprised oil traders and investors.

Previously, the Fed had indicated it was leaning toward reducing the stimulus program. But the Open Market Committee, the Fed’s policy-making arm, concluded a September meeting by saying it will continue buying $85 billion/month in Treasuries and mortgage-backed securities.

US stock values escalated upon the news and US Treasury bonds posted the biggest 1-day climb since November 2011. The economic stimulus program continuation also boosts crude oil prices by weakening the dollar, making US crude cheaper to buy using other currencies (OGJ Online, Aug. 1, 2013).

Consequently, a Barclays Research analyst in London issued a Sept. 18 research note saying Barclays analysts expect oil prices will remain at current levels or higher throughout 2013.

“The window for emerging market oil demand growth…to the upside is now open, as the current constraint for these countries–high import cost–fades and prospects for domestic consumption improve,” said Miswin Mahesh of Barclays Research, part of Barclays Bank PLC.

The Fed’s announcement to refrain from tapering the economic stimulus program “comes at the same time as relatively low spare capacity and relatively low crude [and product] stocks,” Mahesh said. “These factors are expected to remain prevalent in the next year, reinforcing our price view of a $110/bbl average for Brent in 2014.”

In recent weeks, US oil futures have traded at about $3/bbl cheaper than Brent. The spread between US and European oil prices increased following international concerns about a civil war in Syria.

Oil prices on both New York and London markets had been volatile since late August in anticipation of a possible US-led air strike against Syria, but likelihood of such an intervention has diminished since Syria agreed to submit its chemical weapons to United Nations inspectors.

Energy prices

The October contract for benchmark US light, sweet crudes on the New York Mercantile Exchange rose $2.65 on Sept. 18, settling at $108.07/bbl. The November crude contract gained $2.46 to settle at $107.28/bbl.

Heating oil for October delivery climbed 4.2¢ to a rounded $3.04/gal on NYMEX. Reformulated gasoline stock for oxygenate blending for October rose 8.1¢ to $2.74/gal.

The October natural gas contract dropped 3¢ to a rounded $3.71/MMbtu on NYMEX. On the US spot market, the gas price at Henry Hub, La. was $3.72/MMbtu, down 3.7¢.

In London, the October IPE contract for North Sea Brent crude gained $2.41 to $110.60/bbl. The October contract for gas oil settled at $924.25/tonne, down $1.50.

The Organization of Petroleum Exporting Countries reported its basket of 12 benchmark crudes was down 38¢ to $107.26/bbl on Sept. 18.

Contact Paula Dittrick at paulad@ogjonline.com.

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