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 [email protected].
About the Author
Sam Fletcher
Senior Writer
I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.