Crude slips despite big drop in crude stockpiles

Prices end lower following demand concerns which rise after Fed meeting

Crude prices ended lower on Wednesday, 21 September, 2011 at Nymex. Prices rose earlier during the day following the weekly inventory report which showed a bigger than expected drop in crude stockpiles for last week. Most traders also awaited the outcome of the Federal Open Market Committee meeting, which ended with a statement on Wednesday. Prices pared gains following Fed's statement. Prices fell in tandem with US equities which ended considerably lower following downgrades of debts of US banks.



Light and sweet crude for October delivery fell $1 (1.2%) to $85.92 a barrel on the New York Mercantile Exchange on Wednesday. Prices fell to a low of $85.08 and rose to a high of $87.99 during intra day trading. Last week, crude gained 0.8%. For the month of August, 2011, crude shed 7.1%.

In the weekly inventory report, Energy Information Administration reported a decline of 7.3 million barrels in the nation's crude supplies for the week ended 16 September 2011. Market had expected a decline between 1 million and 2 million barrels. The government's update on petroleum stockpiles was bullish all around. Gasoline supplies rose by 3.3 million barrels on the week, and inventories of distillates, which include heating oil and diesel, were down 900,000 barrels. Market had expected gasoline to be up 800,000 barrels, and distillates supplies to rise 1.2 million barrels.

The FOMC announced this afternoon that in order to support a stronger economic recovery it intends to purchase $400 billion of Treasuries with maturities of six years to 30 years, while selling an equal amount of Treasuries with remaining maturities of three years or less, by the end of June 2012. Many market pundits had anticipated such a plan, and had already designated it "Operation Twist" to reflect the Fed's focus on selling shorter term Treasuries and buying longer-term issues. To little surprise, the FOMC also reiterated that it expects economic conditions to warrant exceptionally low levels of the federal funds rate at least through mid-2013.

US stocks ended strictly lower following Fed's comments and also in response to news that Bank of America, Wells Fargo and Citigroup all had their debt ratings downgraded by analysts at Moody's. The decision comes after Moody's had put the firms under review a few months ago.

In the currency market on Wednesday, the dollar index, which measures the strength of the dollar against a basket of six other currencies, ended lower by 0.16%.

The International Monetary Fund downgraded its prospects of the global economy a day earlier. IMF cut U.S. growth forecast to 1.5% this year and 1.8% in 2012. The IMF's 2011 forecast is a full percentage point lower than its expectations three months ago and 0.9% below its prior forecast for 2012.

In a latest report, the EIA said earlier during the week that world energy consumption will grow 53% by 2035, led by demand growth in India and China. In the 2011 International Energy Outlook, the agency predicts that consumption of energy from renewable sources will be the fastest growing energy sector, reaching 15% of the world energy use by 2035 compared to 10% in 2008. But fossil fuels will still be the world's dominant source, accounting for about 78% of the world's energy use in 2035. The EIA said it expects oil prices to remain high, reaching $125 per barrel in 2035, but added that consumption of oil will still grow during that period.

Among other energy products on Wednesday, gasoline futures ended lower after spending most of the day in the black. The October contract retreated 3 cents, or 1.3%, to $2.67 a gallon. October heating oil declined 3 cents, or 0.9%, to $2.93 a gallon.

Natural gas led losses, with the October contract down 7 cents, or 1.8%, to $3.73 per million British thermal units.

At the MCX, crude oil for October delivery closed higher by $39 (0.93%) at Rs 4,209/barrel. Natural gas for September delivery closed at Rs 181.1, lower by Rs 2.6 (1.4%)