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Oil futures plunge to lowest in 2012

TradingPub Admin | February 21, 2013

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The ability of asset markets to react to news by experiencing sharp fluctuations is illustrated by WTI crude futures, which fell to their lowest value of 2013 on February 21, as market participants reacted to news of rising U.S. inventories of the commodity. 

Oil falls to 2013 low
April WTI oil futures declined to as little as $92.84 a barrel on the New York Mercantile Exchange, which was the lowest value for the contract since December 31, 2012, according to Bloomberg. 

A report released by the Energy Information Administration (EIA) revealed that the U.S. crude inventory rose 4.14 million barrels to 376.4 million during the week ending on February 15. 

This figure far surpassed the predictions of many market experts, according to The Associated Press. The EIA's increase in stockpiles was more than twice the median forecast of a 2 million barrel gain predicted by economists taking part in a Bloomberg survey. 

Abundant crude
"We're awash in crude at the moment and it doesn't look like that will change anytime soon," Adam Wise, who contributes to the management of a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston, told the news source. "The significant increase in U.S. output is having a global impact. Plans to bring foreign oil here are being reassessed, making additional barrels available in other markets." 

On February 20, oil also declined in value, as data provided by the American Petroleum Institute indicated that U.S. crude inventories rose 2.96 million barrels to 372 million during the week ending on February 15, according to Bloomberg. 

Other key measures used to quantify the stockpiles of oil rose recently, as EIA data reveals that crude supplies at Cushing, Oklahoma, which is a key part of the delivery process for futures traded in New York, rose 417,000 barrels to reach 50.7 million during the week ending February 18, Bloomberg reports. These supplies rose to a new all-time high of 51.9 million barrels during the week before. 

Federal Reserve minutes
The minutes of the most recent meeting of the Federal Open Market Committee (FOMC) were released on February 20, and this information helped to fuel the uncertainty of market participants as to the future state of the monetary stimulus program. 

The Associated Press reports that oil tracked lower when markets responded to these minutes. The commodity could potentially be affected since it hinges largely on the strength of the economy, which could potentially be altered if the Federal Reserve decides to water down or eliminate its existing bond-buying plan. 

The minutes reveal that certain Federal Reserve policymakers emphasized that the voting members of the FOMC must be prepared to switch up the existing bond-buying plan as needed, according to Bloomberg. 

"The Fed minutes yesterday were certainly spooky for commodity markets," Bill O'Grady, chief market strategist at St. Louis-based Confluence Investment Management, which has $1.4 billion in assets under management, told the news source. "They signal that quantitative easing may have an end point. This undermines a major support of the market." 

Market correction
Reuters reports that oil may be simply be experiencing a correction, as hedge funds and other market participants with substantial buying power have boosted their bullish bets on the commodity since the middle of December.

Data provided by both exchanges where oil is traded and also regulatory filings indicate that these major investors have recently taking options and futures positions in Brent and crude equal to approximately 440 million barrels of oil, according to the news source. 

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