MARKET WATCH: Prices rise on hopes Fed, EU solve financial woes

Prices for crude oil and petroleum products rebound slightly Sept. 20 on hopes the Federal Reserve Bank will again move to stimulate the stock market and that Greece will progress in negotiations with its main lenders.

“Greece has spent roughly half of its independent existence in default. If unable to secure additional loans, the country could go bankrupt next month,” Raymond James analysts warned.

The expiring October crude contract traded as high as $87.46/bbl in the New York market session before giving back some of its earlier gains, yet was up more than 1% on a weaker dollar at closing. Natural gas declined 1% on moderating weather forecasts, said analysts in the Houston office of Raymond James & Associates Inc.

In energy markets, oil products across the barrel failed to catch up with crude, resulting in weaker product cracks and refining margins, said James Zhang at Standard New York Securities Inc., the Standard Bank Group. “The Brent structure strengthened again yesterday on further production issues at the Buzzard field in the North Sea, which have now caused delays of [Sept. 18] Forties cargoes so far,” he said.

Zhang expects market activity to remain subdued pending action by the Fed. “Our bias is that the Fed will deliver what the market expects, i.e. further monetary easing. Nevertheless, we could see ‘sell-the-fact’ moves as the market remains skeptical of the effectiveness of further monetary easing. Furthermore, the Euro-zone debt crisis remains the more urgent concern for the market, which again is likely to keep the upside in oil capped,” he said.

“There is still a market view that the worse the economy is, the higher the chances of another liquidity injection by the US Federal Reserve,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “Seeing how the global markets have been trading lately on a flat price basis, moving up and down on any sort of headlines, we have to be ready for significant volatility” with conclusion Sept. 21 of the 2-day meeting of the Fed’s policy-making Federal Open Market Committee. It may “take a day or two” after the conclusion of the FOMC meeting “before the dust settles,” he said.

Meanwhile, Jakob said, “The Troika [comprised of the European Commission, the International Monetary Fund (IMF), and the European Central Bank] ended their second Greek collect-call-conference in 2 days and decided to meet again next week. For those [who] are starting to be fed up with all this European mess, we now have to incorporate the fact that the Slovenian government has fallen to a vote of no-confidence.” This could delay implementation of financial proposals by the European Financial Stability Facility (EFSF) “until next year if a new government cannot be quickly accepted,” he said.

The EFSF was created last year by EU member countries (including the Republic of Slovenia) that use the euro for currency. Its objective is to preserve stability of Europe’s monetary union by providing temporary financial assistance to member states in difficulty.

IMF officials said Sept. 21 that, because of increased risk to banks and financial markets from the European debt crisis, the worldwide financial system is now most vulnerable since the 2008 financial crisis. It also said the US and Japan must reduce their deficits, but it’s more unlikely now the US can reach a political consensus to do so. In a Sept. 20 report, the IMF sharply reduced its 2011-12 growth forecasts for the US, European, and world economies.

US inventories

The Energy Information Administration said Sept. 21 the US inventory of commercial crude plummeted 7.3 million bbl to 339 million bbl in the week ended Sept. 16, far surpassing the Wall Street consensus for a 1.3 million bbl draw. Gasoline stocks bumped up by 3.3 million bbl to 214.1 million bbl, above average for this time of year and well beyond the increase of 1.4 million bbl that the market expected. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 900,000 bbl to 157.6 million bbl, opposite analysts’ outlook for a 1 million bbl gain.

Imports of crude into the US dropped by 191,000 b/d to 8.4 million b/d last week. In the 4 weeks through Sept. 16, crude imports averaged 8.8 million b/d, down 469,000 b/d from the comparable period a year ago. Gasoline imports averaged 692,000 b/d while distillate imports averaged 158,000 b/d.

The input of crude into US refineries increased 283,000 b/d to 15.3 million b/d with units operating at 88.3% of capacity. Gasoline production decreased to 9.1 million b/d last week while distillate fuel production declined to 4.5 million b/d.

Energy prices

The October contract for benchmark US light, sweet crudes regained $1.19 to $86.89/bbl Sept. 20 on the New York Mercantile Exchange. The November contract increased $1.11 to $86.92/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., kept in step with the front-month crude contract, up $1.19 to $86.89/bbl.

Heating oil for October delivery increased 1.69¢ to $2.96/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month inched up 0.49¢ but its closing price was virtually unchanged at a rounded $2.70/gal.

The October contract for natural gas gave back its gain from the previous session, down 3.1¢ to $3.80/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., rose 3.2¢ to $3.82/MMbtu.

In London, the November IPE contract for North Sea Brent was up $1.40 to $110.54/bbl. Gas oil for October gained $7.50 to $939/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes lost 39¢ to $108.29/bbl.

Contact Sam Fletcher at [email protected].