Oil Prices Rocket After Inventory

Crude oil held on to Wednesday gains and is trading flat this morning at 47.15 while Brent oil gave back a few cents to hold at 49.83. The spread is now less than $3 which is keeping traders on edge. The narrow spread indicates that we should see a market correct in the short term.

A softer U.S. dollar exchange rate against a basket of currencies helped support energy markets after U.S. consumer prices unexpectedly fell in August, which dented expectations of a rise in U.S. interest rates. A little over half of economists in a Reuter’s poll believe the U.S. Federal Reserve’s monetary policy committee will hold fire on Thursday on raising interest rates for the first time in nearly a decade. A weaker dollar makes dollar-priced oil cheaper for non-U.S. investors.

Prices were little changed in New York after climbing 5.7 per cent Wednesday. Inventories fell by 2.1 million barrels through Sept. 11 as output slid a sixth week and refineries increased operating rates for the first time since July, government data showed. Supplies were forecast to expand by two million barrels in a Bloomberg survey.

Oil is down more than 20 percent from this year’s closing peak in June amid a global oversupply that Goldman Sachs Group Inc. estimates is even bigger than it first thought. U.S. stockpiles remain about 100 million barrels above the five-year seasonal average.

“Production continues to head in the right direction,” Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone. “The 2 million barrels shaved off inventories doesn’t change much in the big picture but down is better than up.” West Texas Intermediate was at 47.11 a barrel on the New York Mercantile Exchange, down four US cents. The contract gained $2.56, the biggest jump since Aug. 31, to close at 47.15 on Wednesday. The volume of all futures traded was about 16 percent above the 100-day average. Prices are down 12 per cent this year.

Crude-oil prices were trying to hold onto traction in early Asian trade after the U.S. energy department late Wednesday reported a fall of 2.1 million barrels in crude supplies last week. “Stronger equity market and a weaker U.S. dollar ahead of Thursday’s Federal Open Market Committee report also contributed to risk-on trade flow across a range of commodities, including crude oil,” says Citi Futures analyst Tim Evans.

Energy traders will wait for the weekly inventory report from the EIA but it might be overshadowed by the Federal Reserve today. NG is trading at 2.658 down by 7 points in the morning session. U.S. consumers should expect to see lower propane, natural gas and gasoline prices this fall and winter as the market continues to deal with a supply glut, analysts say, but the extra cash in consumer checking accounts is still going to savings and to pay down debt, and not back into the retail economy.

An abundant supply and sluggish demand sent commodity prices, especially oil, plunging this year, allowing for hundreds of dollars in savings for American households. Natural gas hit a one-month intraday high Tuesday before strong supply pushed prices into retreat. Small production declines combined with expectations for strong demand because of warm weather have helped buoy the market. However, production is still at a near-record pace, and many expect producers can ramp up quickly, preventing any extended rally, analysts said.