Natural-gas futures end the volatile trading week with a loss

Myra P. Saefong and Barbara Kollmeyer, MarketWatch

SAN FRANCISCO/MADRID
EnergiesNet.com 11 11 2022

Oil prices ended higher on Friday after China eased some COVID-19 restrictions, with support for the commodity also stemming from relief surrounding U.S. inflation data that weighed on the dollar.

Crude prices, however, still posted a loss for the week as uncertainty surrounding Chinese energy demand remained.

Price action

• West Texas Intermediate crude for December CL.1, +2.76% CLZ22, +2.76% delivery climbed $2.49, or 2.9%, to settle at $88.96 a barrel on the New York Mercantile Exchange. The front-month contract still marked a decline of 3.9% for the week, according to Dow Jones Market Data.
  
  
• January Brent crude BRNF23, -0.24%   BRN00, -0.24%  the global benchmark, climbed $2.32, or 2.5%, to $95.99 a barrel, after settling up 1.1% on ICE Futures Europe on Thursday. For the week, the contract ended 2.6% lower.
  
  
• Back on Nymex, December gasoline  RBZ22, +2.45%  prices rose 1.7% to $2.6096 a gallon, ending 4.6% lower for the week.
  
  
• December heating oil  HOZ22, +0.54%  declined by 0.4% to $3.5553 a gallon, logging a weekly loss of 9.2%.
  
  
• December natural gas  NGZ22, -5.40% lost 5.8% to settle at $5.879 per million British thermal units, ending the volatile trading week down 8.1%.

Market drivers

“Sheer confusion” on Chinese COVID-19 policy, with the nation’s approach “clear as mud,” is driving the market fluctuation in oil, said Manish Raj, chief financial officer at Velandera Energy Partners.

“On the one hand, the Chinese are signaling easing of restrictions but on the other, they are reaffirming the zero-tolerance policy,” he told MarketWatch. “The jury is still out on what to make of the Chinese COVID response.”

“The jury is still out on what to make of the Chinese COVID response.”— Manish Raj, Velandera Energy Partners

China announced Friday that it was cutting quarantine time for incoming travelers to five days from seven, with 3 days of home isolation. Those travelers will also now be allowed to enter with one negative PCR test taken within 48 hours of traveling, down from two.

And airlines will no longer be threatened with a two-week long flight suspension if they bring in five or more positive travelers.

However, those measures came as Beijing shut city parks and moved classes online for students, amid a fresh wave of COVID-19 cases, while more than 5 million remain locked down in the manufacturing hub of Guangzhou.

Sentiment for oil is still “sullied by the rise of COVID case counts in China and anticipated lockdowns,” said Stephen Innes, managing partner at SPI Asset Management, in market commentary. “Rolling lockdowns across heavily populated areas in China penalize mobility and oil demand even more than economic activity.”

Since traders are “hyper-sensitive to lockdowns in the world’s largest oil importer, this could temporarily hold the oil market’s top-side ambition in check,” he said. But “unquestionably,” oil’s in a much better place than Thursday. 

Also read: Biden tightens methane emissions rule, but still wants more U.S. oil for now

On Friday, a decline in U.S. dollar versus most major currencies continued to provide support to dollar-denominated oil prices.

Oil got a “reprieve from the weaker U.S. dollar and a significant repricing lower in U.S. recession risk as a soft landing looks far more credible” with the possibility that the Federal Reserve may “dial down” its interest-rate hikes, said Innes.

The dollar fell another 1.7%, based on the ICE Dollar Index DXY, -1.65% on Friday. Thursday’s softer-than-forecast U.S. inflation reading triggered a 1,200-point advance for the Dow Jones Industrial Average DJIA, +0.10%, its best day since March 2020.

Despite oil’s recent gains, there is no path to a $100 for WTI crude “unless Russian barrels are curtailed or China abandons its zero-tolerance policy — both of which are extremely unlikely,” said Velandera’s Raj.

In the U.S., data from Baker Hughes BKR, +1.44% Friday showed a second straight weekly rise in the number of active oil-drilling rigs — up by nine to 622 this week.

Next week, oil traders will eye Monday’s monthly OPEC oil report, said Raj, adding that he doesn’t expect any surprises from it since it’s “too early to measure compliance against the massive [production] cuts announced last month.”

Also check out: Biden addresses COP27 on firmer climate footing, but world wants U.S. leadership on pollution

marketwatch.com 11 11 2022