Myra P. Saefong and Williams Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 09 28 2022

Oil futures climbed Wednesday, with U.S. prices settling back above $80 a barrel to their highest finish in nearly a week, after Hurricane Ian forced temporary production cuts in the Gulf of Mexico.

Natural-gas futures shook off early losses to follow oil higher, even as the storm was expected to lead to power outages, and lower demand for the energy source.

Price action

• West Texas Intermediate crude for November delivery CL.1, 0.02% CL00, 0.04% CLX22, 0.02% rose $3.65, or nearly 4.7%, to settle at $82.15 a barrel on the New York Mercantile Exchange. That was the highest finish for a front-month contract since Sept. 22, FactSet data show.
  
  
• November Brent crude BRNX22, 0.02%, the global benchmark, was up $3.05, or 3.5%, at $89.32 a barrel on ICE Futures Europe. December Brent BRN00, -0.01% BRNZ22, 0.03%, the most actively traded contract, rose $3.18, or nearly 3.8%, to $88.05 a barrel.
  
  
• Back on Nymex, October gasoline RBV22, -0.89% rose 3.4% to $2.5779 a gallon.
  
  
• October heating oil HOV22, -0.01% rose 5.8% to $3.4494 a gallon.
  
  
• October natural gas NGV22 rose 3.3% to $6.868 per million British thermal units on the contract’s expiration day. The new front-month November contract NGX22, 2.30% settled at $6.955, up 2.9%.

Market drivers

Hurricane Ian strengthened rapidly into a Category 4 storm that was expected to make landfall on Florida’s Gulf Coast Wednesday. The Bureau of Safety and Environmental Enforcement reported Wednesday that in response to the storm, 9.12% of oil production and 5.95% of natural-gas output in the Gulf has been shut in.

That was, however, lower than shut ins of 11% of Gulf oil output and 8.56% of natural-gas output on Tuesday.

Oil slumped to eight-month lows earlier this week. A persistently strong U.S. dollar, with the currency index DXY, 0.60% trading at a 20-year high, has been a weight on crude and other commodities priced in the unit, making them more expensive to users of other currencies.

Bullish analysts, however, have argued that supplies remain tight and that prices could rebound on significant supply concerns.

Attention is turning toward next week’s meeting of the Organization of the Petroleum Exporting Countries and its allies, which earlier this month agreed to cut output by 100,000 barrels a day for the month of October, reversing an increase of that amount in September.

“We have to acknowledge the dominant trend is still lower for the oil market right now but we do continue to look for the market to stabilize soon as we do not believe the combination of overcompliance by OPEC+, tight global physical markets, and the geopolitical uncertainty surrounding the war in Ukraine can be solely offset by concerns about the global economy,” wrote analysts at Sevens Report Research, in a note.

European and U.K. benchmark natural-gas prices jumped after Kremlin-run Gazprom warned that the remaining gas route to Europe, via Ukraine, is now at risk of being shut off. Damage to the Nord Stream natural-gas pipelines that run from Russia to Europe have also rattled the market.

Read: Nord Stream pipeline leaks remind Europe it can’t rely on natural gas from Russia

Benchmark Dutch front-month futures rose 10% to €205 per megawatt hour on Wednesday. U.K. gas futures GWMV22, -14.79% for October rose nearly 26% to £321.67 per megawatt hour.

Natural-gas futures in the U.S. finished higher on the heels of oil’s rise, giving up early losses, as traders kept an eye on Hurricane Ian’s impact in Florida.

“Ian is not likely to have a major effect on key gas infrastructure or market fundamentals,” said Emily McClain, vice president at Rystad Energy, in a market note.

Still, “there is the potential to see substantial gas demand reductions in Florida and along the U.S. east coast if the regions incur any extensive blackouts,” she said.

If the power outages do not last several weeks, however, the impact on power demand should be short lived,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch. The “primary, longer-term influence” on natural gas remains the expected gas shortages and price spikes this winter in Europe, as it navigates the season without the flow of gas from Russia.

“That leaves the fundamental backdrop still in favor of the bulls on a longer timeframe,” said Richey.

Supply data

Oil futures continued to trade higher after the Energy Information Administration on Wednesday reported that U.S. crude inventories edged down by 200,000 barrels for the week ended Sept. 23.

On average, analysts forecast a climb of 400,000 barrels, according to a poll conducted by S&P Global Commodity Insights. Analysts surveyed by The Wall Street Journal, however, looked for crude inventories to fall by 300,000 barrels, on average. The American Petroleum Institute late Tuesday said U.S. crude inventories rose by 4.2 million barrels last week, sources said.

The EIA also reported weekly inventory declines of 2.4 million barrels for gasoline and 2.9 million barrels for distillates analysts surveyed by S&P Global Commodity Insights had forecast decreases of 100,000 barrels each for gasoline and distillates.

Crude stocks at the Cushing, Okla., Nymex delivery hub edged up by 700,000 barrels for the week, the EIA said, while supplies in the Strategic Petroleum Reserve fell 4.6 million barrels to 422.6 million barrels.

marketwatch.com 09 28 2022