MARKET WATCH: Crude oil prices, Bernanke's speech both flat

Crude oil traded flat and natural gas inched up slightly Aug. 25 in the New York market as deceptively powerful Hurricane Irene neared the East Coast and analysts waited to hear what Federal Reserve Bank Chairman Ben Bernanke would say in a much-anticipated speech at Jackson Hole, Wyo.

However, against most expectations, Bernanke proposed no new Federal Reserve program to strengthen the US economy during his Aug. 26 speech at the Kansas City Fed’s Jackson Hole conference. Instead, he warned Congress not to dismiss the fragility of the economic recovery in their efforts to reduce the national debt and spending. Bernanke said the meeting will be extended for a second day for further discussion of September policy.

“This time last year, [Bernanke] announced quantitative easing Phase 2 [in a speech at Jackson Hole], and the markets had been building themselves up expecting the Fed to somehow pull a rabbit out of a hat given its relatively limited tool bag this time around,” said analysts in the Houston office of Raymond James & Associates Inc. “They couldn't sustain the week's momentum, however, as the Dow Jones Industrial Average gave up 170 points yesterday on expectations that today's Commerce Department report may show the US economy grew at just 1.1% annualized in 2Q11 vs. the previously expected 1.3%,” they said.

“Today the focus will be on [Bernanke] and Irene, and one is as unpredictable as the other,” said Olivier Jakob at Petromatrix in Zug, Switzerland, prior to the speech.

Irene was reported as a relatively modest category 2 hurricane—primarily because of its exceptionally large wind field—off the North Carolina coast early Aug. 26. But weather forecasters claim in terms of pressure it is near category 4, out of a maximum 5, giving it an unofficial power rating greater than 2. Winds of tropical storm force extend more than 290 miles while hurricane force winds reach more than 90 miles from the storm’s center. Moreover, the storm is occurring near the period of a new moon when tides are “astronomically high.”

Jakob said, “Hurricane Irene will hit the East Coast over the weekend, but we find it more difficult to price a hurricane on the east than on the US Gulf Coast. The hurricane can have an impact on some oil refining and distribution assets (and the gasoline cracks were well bid yesterday in anticipation of that), but on the other hand it can also bring the East Coast to an oil demand standstill (less flying, less road travel, less shopping, etc.). Power lines when hit can shut down an oil distribution asset, but the same applies to any factories and businesses. Given the current price level, we have little doubt that if any of the oil refining or distribution assets are hit, the International Energy Agency will be quick to order a product stock release from Europe. This being said, Irene is a powerful hurricane hitting a region not really used to such weather events, and whatever Irene has done will be an important price input when the oil markets reopen on Sunday night.”

In the current market, Jakob said, “The only thing missing to have a fuller comparison with 2008 is a major bankruptcy or a major hedge fund blowing out. Bank of America has been sliding since the start of the year in a declining trend that is bringing it closer to the 2009 lows. On [Aug. 22], President Barack Obama while on holidays calls Warren Buffet to “talk about the economy” and on [Aug. 24] Buffet by himself comes up with the great idea of buying $5 billion worth of Bank of America while the chief executive officer of the bank makes the reassuring remarks that ‘I remain confident that we have the capital and liquidity to run our business.’ The announcement of the deal yesterday, timed 20 minutes before the open of the US stock market, did help to trigger an early surge on the Standard & Poor’s futures.”

Jakob said, “We have a lot of respect for what ‘the sage of Omaha’ [Buffet] has done in the past, but we are unsure that the markets are blind enough to make a sentiment U-turn on the latest trade of the sage of [President] Obama. The hot potato is still in the hands of Bernanke.”

Meanwhile, Reuters news service reported Ali Tarhouni, the rebel leader in charge of Libya's oil and financial matters, indicated he expects to ramp up oil exports from that country to 500,000-600,000 b/d within 2 weeks and reach full volume of 1.6 million b/d in a year. He’s reported to have said 90% of the oil fields are “fine,” thus implying the other 10% may be damaged.

“At first glance, Tarhouni's projections seem fairly aggressive considering oil production averaged 120,000 b/d in the second quarter,” Raymond James analysts said. “Our channel checks suggest less than half of that [promised] amount (200,000-300,000 [b/d]) would be able to come back online quickly. Possibly more notable: he indicated Libya would continue to honor existing (pre-revolution) contracts with oil companies.”

Energy prices

The October contract for benchmark US light, sweet crudes rose 14¢ to $85.30/bbl Aug. 25 on the New York Mercantile Exchange. The November contract inched up 11¢ to $85.64/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up 14¢ to $85/30/bbl.

Heating oil for September delivery increased 2.48¢ to $2.99/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month climbed 8.95¢ to $2.97/gal.

The September contract for natural gas advanced 0.9¢ to $3.93/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., dropped 7.2¢ to $3.99/MMbtu.

In London, the October IPE contract for North Sea Brent increased 47¢ to $110.62/bbl. Gas oil for September dipped 25¢ to $942/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes escalated $1.08 to $107.61/bbl.

Contact Sam Fletcher at [email protected].