Oil Prices Rebound as Fed's Optimistic Outlook Boosts Demand

The oil market experienced a brief rally on May 19, 2010, as crude futures rose for the first time in six sessions, boosted by the Federal Reserve's improved outlook for the US economy. Despite concerns over Europe's recovery, oil prices regained some ground, with light, sweet crude for June delivery settling 46 cents higher at $69.87 a barrel. However, gains were limited due to increased demand from China and the US, which offset the impact of a European slowdown.

Key Takeaways:

• The Federal Reserve's improved outlook for the US economy, with a growth forecast of 3.2% to 3.7% for 2010, provided new support for oil prices.
• Matt Zeman, president of trading at LaSalle Futures Group, stated that the oil market would be unlikely to escape the downward pull of a European slowdown, suggesting that prices would fall if Europe's economy continues to deteriorate.
• Gene McGillian, an analyst with Tradition Energy, suggested that some investors may have exited bets that crude futures will continue to fall, in case the oil market has hit bottom.
• Weekly oil inventory data from the US Energy Information Administration had little impact on trading, showing a 200,000-barrel increase in nationwide oil inventories and a 1 million-barrel decrease in distillate inventories.
• Refinery runs dropped to 87.9% of capacity, down from 88.4% a week earlier.
• The oil market has become increasingly dependent on demand from China and the US, with global demand unlikely to escape the downward pull of a European slowdown.

Statistics:

• Crude futures rose 46 cents, or 0.7%, to settle at $69.87 a barrel for June delivery.
• The Federal Reserve predicts the US economy will grow between 3.2% and 3.7% in 2010.
• U.S. oil inventories rose 200,000 barrels in the week ended May 14.
• Gasoline stocks fell 300,000 barrels, and distillate inventories (including heating oil and diesel) fell by 1 million barrels in the same week.
• Refinery runs dropped to 87.9% of capacity from 88.4% a week earlier.

Sources:

• Dow Jones Commodities News via Comtex, May 19, 2010.
• Brian Baskin, Dow Jones Newswires, 212-416-2453, brian.baskin@dowjones.com.