Oil remained steady in the early European session and traded near one-week high after Ben Bernanke said before Congress that the U.S. economy currently needs Feds accommodative monetary policy in the foreseeable future and it can even be accelerated, if recovery slows its pace. However, Quantitative Easing is still expected to be tapered within the year and brought to an end by mid-2014, if the requirements are fulfilled. Meanwhile, U.S. crude oil inventories fell three times more than expected after marking an all-time record drop during the previous two weeks.
On the New York Mercantile Exchange, WTI crude for September delivery traded at $106.13 per barrel at 7:05 GMT, down 0.21% on the day. Prices ranged between days high and low of $106.46 and $105.99 per barrel respectively. The U.S. benchmark settled more than 0.5% higher on Wednesday, trimming this weeks decline to 0.03% after gaining almost 9.9% during the preceding two.
Meanwhile, Brent oil for September delivery stood at $108.58 per barrel at 7:05 GMT, down 0.03% for the day. Prices shifted between daily high and low of $108.74 and $108.45 a barrel respectively. The European benchmark climbed 0.7% on Wednesday, reducing current weeks loss to 0.4% after advancing 6.8% in the previous two.
Oil reserves drop for a third week
Yesterday, the Energy Information Administration said in its weekly report that U.S. crude oil inventories fell for a third straight week, the longest run this year. U.S. refineries processed the most crude in eight years. Reserves fell by 6.9 million barrels to 367.0 million in the week ending July 12, placing them in the upper half of the average range for this time of the year. Refineries operated at 92.8% of their operable capacity last week, the highest this year. Crude stockpiles at Cushing, Oklahoma, the delivery point for futures traded at the New York Mercantile Exchange and biggest U.S. storage hub fell by 882 000 barrels to 46.1 million.
Gasoline production decreased, while distillate fuel output increased, averaging 9.0 million and 5.1 million barrels per day respectively. U.S. gasoline stockpiles added 3.1 million barrels last week, standing well above the upper limit of the average range for this week of the year. Distillate fuel inventories increased by 3.9 million and were in the lower half of the average range.
The Energy Information Administration’s report confounded analysts’ expectations, extending the all-time record high 20.2 million barrels drop to 373.9 million in the 14 days ending July 5. According to a Bloomberg survey, the EIA should have reported crude reserves have fallen by 2 million barrels last week. Gasoline inventories were supposed to drop by 1.5 million barrels, while distillate fuel inventories were expected to have risen by 1.5 million barrels.
Ken Hasegawa, a commodity sales manager at Newedge Japan, said for Reuters: “The sharp drawdown in inventories is a big factor for oil markets as it shows refiners in the United States are processing more crude. With the Fed continuing with its stimulus, there is a lot of money to invest in oil and other commodities. There are not many sellers, but many buyers.” Hasegawa expected West Texas Intermediate will reach the $110 mark by the end of the month amid the stable U.S. economic recovery and continuing drops in oil reserves.
Monetary stimulus outlook
Meanwhile, oil gains remained somewhat limited as the dollar strengthened following Ben Bernankes testimony to Congress. The U.S. currency gauge settled higher on Wednesday, trimming this weeks decline to 0.1%. The dollar index for September settlement traded at 83.00 at 7:06 GMT on Thursday, up 0.27% on the day. Futures held in range between 83.03 and 82.76.
The Fed chairman said yesterday in remarks prior to his statement that Feds monetary stimulus is not on a “preset course” and reiterated his opinion from last week that the U.S. economy still needs an accommodative monetary policy in the foreseeable future.
“I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course,” Bernanke said. He stated that the central bank still expects to start winding down its monetary easing program by the end of the year and bring it to an end by mid-2014, if the required recovery signs are at hand. However, he left open an option for changing that plan if the economic situation shifts towards negative.
Analysts at ANZ said in a note: “Bernanke reminded markets that the timetable for tapering could be pushed back if the economy and labour market didnt improve as expected. He emphasised that tapering and interest rates (forward guidance) decisions remain independent, and that the timetable for tapering remains very much data-dependent.”
Meanwhile, investors will also be keeping an eye at the remaining U.S. economic data for the week. The Labor Department will release Initial Jobless Claims on Thursday. The number of people who have filed for unemployment payments is expected to have dropped by 20 000 to 340 000 after last week an unexpected surge to 360 000 supported Bernanke’s statement that the U.S. labor market is still fragile. The Philadelphia Fed Index is also to be released on Thursday with expectations for a poorer performance, compared to the previous reading.