MARKET WATCH: Crude tops $70/bbl as Bernanke declares recession over

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 16 -- The front-month crude contract climbed above $70/bbl Sept. 15 in the New York market after Federal Reserve Chairman Ben Bernanke announced the recession is likely over, the US dollar hit a new 2009 low against the euro, and the Organization of Petroleum Exporting Countries raised its oil demand forecast.

“Bernanke declaring that the US recession is over and better than expected retail sales data propelled the equity markets to new highs for the year,” said Olivier Jakob at Petromatrix, Zug, Switzerland. “There is no clear trend on West Texas Intermediate but there is a strong one on equities, and this trend is taking the dollar down with it and crude oil higher by default.” Natural gas prices continued to climb Sept. 15.

US equity markets hit new highs for the year following Bernanke’s remarks, with the Dow Jones Industrial Average registering its highest closing since Oct. 6, 2008. However, Bernanke also predicted unemployment will remain high and the economy will be weak well into 2010.

The US Department of Labor said the Consumer Price Index rose 1.4% in the 12 months through August. The US Census Bureau reported retail sales were up 2.7% in August from July figures—the fastest rate of increase in 3 years—but down 5.3% from August 2008.

The Federal Reserve said August output at US factories, mines, and utilities increased 0.8%. It also revised July production up to a 1% increase, double the number originally reported. Auto production increased 5.5% on top of a 20.1% gain in July, primarily the result of the government “Cash for Clunkers” subsidy.

In its September report, OPEC said world oil demand in 2009 would contract by 1.56 million b/d to 84.05 million b/d. However, the group said, “In 2010, global demand is forecast to return to growth following 2 years of consecutive declines, increasing 0.5 million b/d to stand at 84.6 million b/d (OGJ Online, Sept. 15, 2009).”

On Sept. 16, the militant Movement for the Emancipation of the Niger Delta (MEND) extended for another 30 days its 2-month-old ceasefire to allow more time for talks with the Nigerian government. The truce originally was scheduled to expire at midnight Sept. 15. The truce extension should remove some risk premium from crude markets, Jakob said.

US inventories
The Energy Information Administration said Sept. 16 commercial US crude inventories fell 4.7 million bbl to 332.8 million bbl in the week ended Sept. 11. That exceeded the Wall Street consensus for a 2.5 million bbl decline and totally contradicted the American Petroleum Institute’s earlier bearish report of a 7.1 million bbl jump in crude. Gasoline stocks increased 500,000 bbl to 207.7 million bbl in the same period, short of Wall Street’s consensus of a 700,000 bbl addition. Distillate fuel inventories gained 2.2 million bbl to 167.8 bbl, up from Wall Street expectations of a 1.3 million bbl build.

Imports of crude into the US were down 192,000 b/d to 8.9 million b/d that week. In the 4 weeks ended Sept. 11, US imports of crude averaged 9.2 million b/d, down by 454,000 b/d from the same 4-week period last year.

The input of crude into US refineries dipped by 56,000 b/d to 15 million b/d, with units operating at 86.9% of capacity last week. Gasoline production decreased to 9 million b/d. Distillate fuel production increased to 4.2 million b/d.

Jacques H. Rousseau, an analyst at Soleil-Back Bay Research, observed, “Gasoline inventories continued to rise last week, and are well ahead of year-ago levels. High distillate inventories (24% above the 5-year average for this calendar week) are a larger problem, and this should become a more important issue for refiners as winter approaches. Demand comparables appear strong (up 3.7% over the past 4 weeks vs. 2008 levels), but it is important to remember that the third quarter of 2008 was a very weak quarter for consumption, and the current quarter is still well below third quarter 2007 levels. We remain cautious on the near-term outlook for the refining sector.”

Jakob said, “The problem in the energy markets remains that the products are not following crude oil on the macrotrade, hence the product cracks continue to weaken as crude goes higher on the Standard & Poor’s correlation. Something needs to be done with the crude oil molecules, and at the current economics US refiners are not making any profits transforming crude oil into products, and with the narrowing contango they are also not making profits keeping the crude in tanks. Shut-down is the best option for a US refiner.

Energy prices
The October contract for benchmark US light, sweet crudes climbed by $2.07 to $70.93/bbl Sept. 15 on the New York Mercantile Exchange. The November contract gained $1.93 to $71.30/bbl. On the US spot market, WTI at Cushing, Okla., was up $2.07 to $70.93/bbl. Heating oil for October delivery increased 3.79¢ to $1.78/gal on NYMEX. Reformulated blend stock for oxygenate blending (RBOB) for the same month escalated 4.59¢ to $1.79/gal.

The October natural gas contract was up 2.3¢ to $3.32/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., jumped 39¢ to $3.27/MMbtu.

In London, the expiring October IPE contract for North Sea Brent crude lost 9¢ to $67.35/bbl, while the November Brent contract gained $1.49 to $69.86/bbl. Gas oil for October increased 25¢ to $552/tonne.

The average price for OPEC’s basket of 12 reference crudes increased 38¢ to $66.95/bbl on Sept. 15.

Contact Sam Fletcher at [email protected].