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Oil Prices Rise Amid Recovering US Economy, Threatened by Weak Demand and High Inventories

Strategic Insights

— 2 min read

The oil market recovered slightly on Tuesday as a stronger US economy helped prices climb back from recent lows. Crude futures for October delivery rose 84 cents, or 1.2%, to trade at $69.70 a barrel on the New York Mercantile Exchange. However, analysts warn that gains may be limited due to weak demand and high inventories. Oil prices have struggled to stay above $67 a barrel since the summer trading range, with rallies off the recovering economy failing to show significant strength.

Key Takeaways:

  • Crude futures for October delivery rose 84 cents, or 1.2%, to trade at $69.70 a barrel on the New York Mercantile Exchange.
  • Brent crude on the ICE futures exchange traded 42 cents higher at $67.86 a barrel.
  • Oil prices got a small boost from US retail sales data, showing a big increase in spending in August, though much of the gain was tied to the concluded "cash for clunkers" government-supported car trade-in program.
  • Oil prices have not traded below $67 a barrel in nearly a month.
  • Gains may be even more limited heading into the fall, with gasoline demand in the US typically dropping off in September and not picking up until colder weather spurs heating oil consumption.
  • Refiners are already seeing weaker margins on gasoline production, with crude and gasoline futures indicating a profit of just over $4 a barrel, compared with over $15 a month ago.
  • Analysts with JBC Energy expect US refiners to cut runs significantly in the near future, with others polled by Dow Jones Newswires seeing a reduction of 0.4 percentage point to 86.8% of capacity.

Statistics:

  • Crude futures rose 84 cents, or 1.2%, to trade at $69.70 a barrel.
  • Brent crude traded 42 cents higher at $67.86 a barrel.
  • Oil prices have not traded below $67 a barrel in nearly a month.
  • Gasoline demand in the US typically drops off in September, and is expected to drop by 0.4 percentage point to 86.8% of capacity.
  • Refiners are seeing weaker margins on gasoline production, with a profit of just over $4 a barrel.
  • Analysts expect oil inventories to fall by 2.4 million barrels a day, with gasoline stockpiles rising by 500,000 barrels and distillate inventories, including heating oil and diesel, forecasted to rise by 1.6 million barrels.

Sources:

  • Dow Jones Commodities News via Comtex, "Crude Futures Rise Amid Recovering US Economy", September 15, 2009.
  • Brian Baskin, Dow Jones Newswires, "Oil Prices Rise Amid Recovering US Economy", September 15, 2009.
  • JBC Energy, "US Refiners to Cut Runs Significantly in the Near Future", no date.
  • Dow Jones Newswires, "US Energy Department to Release Latest Data", no date.

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