MARKET WATCH: Crude oil prices rise as end of recession is declared

Sam Fletcher
OGJ Senior Writer

HOUSTON, Sept. 21 -- Crude oil prices rose Sept. 20 after the National Bureau of Economic Research declared the longest economic recession since the Great Depression officially ended in June 2009, but natural gas prices fell below $4/MMbtu with no storms threatening Gulf of Mexico production.

Standard & Poor’s 500 index “wasted no time celebrating” victory over recession as it climbed 1.5% to its highest level since May, pushing through levels of technical resistance in the process, said analysts in the Houston office of Raymond James & Associates Inc. “Crude, again looking to the broader market for signs of economic growth, posted a gain of 1.3%,” they reported. “The Electronic Payment Exchange and Oil Service Index attended the party as well, both ending the day up 1.8% and 1.9%, respectively. However, gas said goodbye to its $4 levels as prices slipped 4.9%” in the New York market.

Still, Raymond James analysts and others questioned whether the improvements signal an accelerating recovery when the unemployment rate remains at “a scary 9.6%.” They were hoping for “more clarity on the economic condition” following the Sept. 21 meeting of the officials of the Federal Reserve System. Most observers expect lively debate but few major programs from that meeting.

“Some buzz is always created” around meetings of the Federal Open Market Committee, the Fed’s policy-making arm, “and the need to buy crude oil as a hedge against inflation,” observed Olivier Jakob at Petromatrix, Zug, Switzerland. “However, in our opinion, buying West Texas Intermediate futures or index instrument linked to it to hedge against potential inflation is one of the worse trades available. Holding WTI futures has an annualized cost of 21%, and anyone paying that much money to hold an imperfect hedge against a few points of inflation is not doing a proper cost analysis,” he said.

Jakob said, “If we need to consider the risk that ‘Helicopter Ben’ [Federal Reserve Chairman Ben S. Bernanke] gives another artificial boost to financial markets (including commodities and oil) we will want to use any Bernanke rally to establish counter-trend bearish strategies (e.g. ‘bear-spreads’) as it would not be the first time that the Fed is intervening, but such rallies have never lasted as they are simply too artificial.”

At Standard New York Securities Inc., part of the Standard Bank Group, analyst Leon Westgate said, “Although crude oil has generally been tracking the dollar, rallying strongly yesterday afternoon as the dollar weakened, the relationship has broken down of late, with front month WTI instead looking much more to the equity markets for short term price direction., while high inventory levels in Cushing[, Okla.] also dampen sentiment.”

In other news, Jakob reported, “Data released yesterday by the US Highway Administration shows an increase in vehicles miles driven in July of 0.8% (year-over-year), which is about in line with the 1% [increase] recorded for June. The absolute level of US vehicles miles driven is therefore at a new record high for a month of July or for any single month, but the growth is not enough to offset the increasing share of ethanol in the gasoline supply mix.”

Meanwhile, a tropical storm has formed west of the Cape Verde Island but is on track to the middle of the Atlantic. A low is reported off Venezuela in the early stages of development with little probability of becoming a tropical storm in the next 2 days.

Energy prices
The October contract for benchmark US sweet, light crudes gained $1.20 to $74.86/bbl Sept. 20 on the New York Mercantile Exchange, ending a 4-day decline. The November contract climbed $1.27 to $76.19/bbl. On the US spot market, WTI at Cushing was up $1.20 to $74.86/bbl. Heating oil for October delivery rose 4.02¢ to $2.14/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month increased 3.04¢ to $1.95/gal.

The October natural gas contract fell 20.2¢ to $3.82/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 12.5¢ to $3.96/MMbtu.

In London, the November IPE contract for North Sea Brent crude was up $1.11 to $79.32/bbl. Gas oil for October jumped by $18.75 to $682.25/tonne.

The average price for the Organization of Petroleum Exporting Countries' basket of 12 reference crudes increased 31¢ to $75.26/bbl.

Contact Sam Fletcher at [email protected].