Sam Fletcher
Senior Writer
HOUSTON, Jan. 23 -- The near-month crude contract dropped to $86.11/bbl in intraday trading Jan. 22 before climbing back to just below $90/bbl in New York when, in a rare move between formal meetings, the Federal Reserve reduced its overnight lending rate by three quarters of a percentage point to 3.5%.
That cut came after a dramatic sell-off by global financial markets on Jan. 21 on fears that failing credit markets could drive the US economy into recession. It marked the first time since Sept. 17, 2001, that the Federal Open Market Committee changed the federal funds target rate outside of a regular meeting. Its next meeting is scheduled Jan. 29-30, and markets anticipate another rate cut of possibly a half-point.
The Fed has lowered interest rates by 1.75 percentage points since Sept. 18. It also reduced its discount rate by 75 basis points to 4% on Jan. 22.
"When oil comes tumbling down, the Organization of Petroleum Exporting Countries pulls an emergency cut and when the Dow Jones Industrial comes tumbling down, the Fed does the same," said Olivier Jakob of Petromatrix GMBH, Zug, Switzerland. "The Fed emergency cut came coincidently at the crucial time when West Texas Intermediate was starting to test the support of the previous correction and makes on the charts a nice double bottom at $86/bbl," Jakob said, adding, "However, despite the strong rebound from the lows, we are not yet out of the negative momentum, and WTI is still not able to break the resistance of the 5-day moving average."
Analysts in the Houston office of Raymond James & Associates Inc, said, "Both crude oil and natural gas traded down Jan. 22. Increasing concerns that a US economic slowdown could hinder global energy demand led crude oil to fall to a 1-month low. These concerns have muddled OPEC's demand outlook for the year, and several ministers have hinted that the group will keep production steady at its Feb. 1 meeting. Due to the holiday, the weekly Department of Energy inventory data will be released a day later than normal."
Energy prices
The February crude contract of benchmark US light, sweet crudes dropped 72¢ to $89.85/bbl Jan. 23 on the New York Mercantile Exchange. The March contract lost 71¢ to $89.21/bbl. On the US spot market, WTI at Cushing, Okla., was down 72¢ to $89.86/bbl. The February heating oil contract dropped 3.48¢ to $2.47/gal on NYMEX. The February contract for reformulated blend stock for oxygenate blending (RBOB) fell 2.28¢ to $2.28/gal.
The February natural gas contract dropped 32.3¢ to $7.67/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., lost 42.5¢ to $7.96/MMbtu.
In London, the February IPE contract for North Sea Brent gained 94¢ to $88.45/bbl. Gas oil for February dropped $1.25 to $776.75/tonne.
The average price of OPEC's basket of 12 benchmark crudes fell $1.37 to $83.84/bbl on Jan. 22.
Contact Sam Fletcher at [email protected].
