Crude Falls as Bernanke Says Fed to End Asset BuyingMoming Zhou and Mark Shenk
West Texas Intermediate crude fell after Federal Reserve Chairman Ben S. Bernanke said the central bank may start reducing bond purchases later this year and end them in the middle of 2014.
Prices dropped as much as 0.9 percent in electronic trading after the close of floor trading. The Fed will trim the $85 billion-a-month stimulus if the economy continues to improve as the central bank forecasts, Bernanke said at a press conference following a two-day policy meeting in Washington. Futures closed little changed before his remarks on a separate statement that the Fed will keep buying government bonds at that pace.
“It represents a huge change in policy and that’s why the market is down,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “It’s more bearish for the market.”
WTI for July delivery, which expires tomorrow, dropped 40 cents, or 0.4 percent, to $98.01 a barrel at 3:44 p.m. on the New York Mercantile Exchange after falling to $97.57. The contract settled at $98.24 a barrel earlier, down 20 cents from yesterday’s nine-month high of $98.44. The volume of all futures traded was 14 percent above the 100-day average for the time of day at 4:36 p.m.
Brent for August settlement slid 19 cents to $105.83 a barrel on the London-based ICE Futures Europe exchange. Volume was 28 percent below the 100-day average. The European benchmark grade’s premium over WTI widened to $7.64 using August contracts. It was $7.35 yesterday, the narrowest based on closing prices since January 2011.
The Federal Open Market Committee “currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said, “if the incoming data are broadly consistent with this forecast.”
The Fed also left unchanged its plans to hold the target interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent, according to a statement issued after the FOMC meeting.
U.S. equities declined and the dollar strengthened against the euro after Bernanke’s comments, which were “bolder” than the FOMC statement, Schenker said.
The Standard & Poor’s 500 Index dropped 1.4 percent. The dollar gained as much as 1 percent to $1.3262 per euro. A stronger dollar reduces oil’s appeal as an investment alternative.
“They have left open the possibility of a reduction in stimulus, which is worrisome,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.
Futures also fell as a government report showed crude inventories unexpectedly rose last week.
Stockpiles increased 313,000 barrels to 394.1 million barrels in the week ended June 14, the Energy Information Administration, the Energy Department’s statistical arm, said. Analysts surveyed by Bloomberg had expected a slide of 500,000 barrels.
Stockpiles reached an 82-year high of 397.6 million on May 24. Imports rose to 8.44 million barrels a day last week, the most since Dec. 7.
“We are very well supplied,” said David McAlvany, chief executive officer of McAlvany Financial Group in Durango, Colorado. “Prices should arguably be lower.”
Supplies at Cushing, Oklahoma, the delivery point for New York futures, slid 669,000 barrels to 48.6 million, the lowest level since December.
Gasoline stockpiles increased 183,000 barrels to 221.7 million and distillate fuels, which include diesel and heating oil, fell 489,000 barrels to 121.6 million. Analysts had forecast an increase of 750,000 barrels in gasoline and a gain of 925,000 barrels in distillates.
Refineries increased their utilization rate to 89.3 percent last week, the highest level since December, from the prior week’s 87.5 percent.
The EIA report also showed that gasoline consumption increased for the first time in three weeks, up 2.2 percent to 8.84 million barrels a day. Total petroleum demand gained 2.8 percent to 18.4 million barrels a day.
“There were mixed elements within the report, but the overall sense was bearish,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. The market “is not becoming physically tighter overall.”
Implied volatility for at-the-money WTI options expiring in August was 18.1 percent, down from 18.8 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 608,578 contracts as of 4:36 p.m. It totaled 514,609 contracts yesterday, 18.2 percent lower than the three-month average. Open interest was a record 1.87 million contracts.