MARKET WATCH: Fed plan, Muslim turmoil raise oil prices

Sept. 17, 2012

Crude oil prices kept climbing with the front-month crude contract temporarily topping $100/bbl Sept. 14 before closing at $99/bbl on the New York market. Crude appeared to be holding in that range in early trading Sept. 17, with the US dollar still near a 4-month low against the euro.

Sam Fletcher

The Federal Reserve System’s plan to keep interest rates at record lows through mid-2015 while buying $40 billion of mortgage securities each month until the economy improves will keep downward pressure on the dollar’s value and drive oil prices up, analysts said (OGJ Online, Sept. 14, 2012).

Escalating turmoil in countries with large Muslim populations over a film seen as ridiculing that faith also supports higher oil prices. “Tensions ratcheted up in North Africa and the Middle East with protests in Egypt, Libya, and Yemen, all of which could potentially lead to supply disruptions,” said analysts in the Houston office of Raymond James & Associates Inc.

Marc Ground at Standard New York Securities Inc., the Standard Bank Group, reported, “We could see some upside [to oil prices] today as focus returns to Iran, amid a US-led mine-clearing exercise in the Persian Gulf intended as a show of force and a commitment to US allies in the region.”

Ground also noted net speculative length for front-month crude in the New York market resumed its climb last week. “This puts net speculative length as a percentage of open interest at 11.8%, well above the 5-year average of 6.4%. This is indicative of a market that is considerably overstretched and vulnerable to correction,” he said.

However, Ground said, “This is nothing new; net speculative length as a percentage of open interest has averaged 10.1% this year so far. In addition, we feel that the situation in Iran, together with the Fed’s additional monetary accommodation, should keep the crude oil market well supported for now.”

Energy prices

The October contract for benchmark US light, sweet crudes was up 69¢ to $99/bbl Sept. 14 on the New York Mercantile Exchange. The November contract climbed 70¢ to $99.33/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., increased 69¢ to $99/bbl.

Heating oil for October delivery increased 2.82¢ to $3.24/gal on NYMEX. Reformulated stock for oxygenate blending for the same month advanced 5.34¢ $3.02/gal.

The October natural gas contract, however, fell 9.4¢ to $2.94/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 6.7¢ to $2.90/MMbtu.

In London, the new front-month November IPE contract for North Sea Brent climbed 78¢ to $116.66/bbl. Gas oil for October rose $9 to $1,013.50/tonne.

The average price for the Organization of Petroleum Exporting Countries’ basket of 12 benchmark crudes increased $1.40 to $114.87/bbl. So far this year, OPEC’s basket price has averaged $110.26/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.