August crude oil futures bucked the trend in many commodities to post a strong close for the week. The market was buoyed by signs of an improving economy and comments from a Fed official.
The week started with the market under pressure because of comments last week from Federal Reserve Chairman Ben Bernanke. In his post-Fed policy statement news conference, the Chairman basically said that the Fed would begin tapering its aggressive $85 billion monthly stimulus program when the evidence shows an improving economy. The market read his statement as the Fed will begin winding down the stimulus by the end of the year, but maybe as early as September.
His statement sent interest rates higher. Consequently, Treasury instruments fell along with stocks and commodities. August crude oil futures dropped from $99.21 on June 19 to $92.67 by June 24. At this point, crude oil investors thought the market had dropped enough and mounted a strong rebound, taking the market back to $97.41 by Thursday, June 27.
Also pressuring crude oil early in the week were concerns about the Chinese credit markets. At the start of the week, the market was reacting as if the Chinese markets were moving toward a full-blown credit crisis. About mid-week, however, crude oil began to stabilize after a People’s Bank of China official reassured traders by stating that the central bank was moving toward establishing more “reasonable rates”.
Stronger than expected…