Mayra P. Saefong and William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 12 14 2022

Oil futures rallied on Tuesday to their highest finish in more than a week, as colder weather forecasts in the U.S. boosted prospects for energy demand, and a lower-than-expected domestic inflation reading pressured the dollar.

Prices for oil also continued to find support as the Keystone pipeline remained closed and investors gauged a potential increase in demand from China’s loosening of COVID-19 curbs.

Price action

• West Texas Intermediate crude for January delivery CL.1, 0.23%   CL00, 0.23%   CLF23, 0.23% rose $2.22, or 3%, to settle at $75.39 a barrel on the New York Mercantile Exchange, the highest front-month finish since Dec. 5, according to Dow Jones Market Data.
  
  
• February Brent crude BRN00, 0.09%   BRNG23, 0.09%, the global benchmark, added $2.69, or nearly 3.5%, to $80.68 a barrel on ICE Futures Europe, also the highest finish in just over a week.
  
  
• Back on Nymex, January gasoline RBF23, 0.43% rose 3.8% to $2.1609 a gallon.
  
  
• January heating oil HOF23, 1.16% was up 4.2% at $3.0922 a gallon.
  
  
• January natural-gas futures NGF23, -5.19% climbed 5.3% at $6.935 per million British thermal units after trading as high as $7.105.

Market drivers

Oil extended a bounce seen after both Brent and WTI sank more than 11% last week to trade at levels seen nearly a year ago.

Prices on Tuesday were “already on the rebound… along with natural gas on a combination of cold temperatures [ and] storms in North America and speculation around China’s reopening,” Colin Cieszynski, chief market strategist at SIA Wealth Management, told MarketWatch. The cold temperatures are likely to raise demand for heating fuels, such as natural gas, as well as heating oil, which is a product of crude oil.

Gains for crude oil then “accelerated alongside rallies by other commodities and currencies following the release of the U.S. inflation numbers, which sparked a selloff in the U.S. dollar and lifting the lid off of markets which trade in U.S. dollars,” Cieszynski said.

Data on Tuesday showed the U.S. cost of living rose a scant 0.1% in November. Economists polled by The Wall Street Journal had forecast a 0.3% increase in the consumer-price index. The annual rate of inflation fell to 7.1% from 7.7% in the prior month, marking the lowest level since the end of 2021.

Meanwhile, the Keystone pipeline remains closed following a leak last week that spilled 14,000 barrels of crude in Kansas. The pipeline’s operator, Canada-based TC Energy Corp. TRP, +1.28%, hasn’t provided a timetable for a resumption of flows. The pipeline carries around 600,000 barrels a day of crude from Canada to Cushing, Oklahoma, where it can connect to another pipeline to the Gulf Coast.

Elsewhere, China’s relaxation of its strict COVID-zero policy was seen as a positive, while Russia has warned that the $60 a barrel price cap on Russian crude, which trades at a significant discount to Brent, could prompt it to cut off exports.

Some analysts were skeptical of the bounce, noting that China’s rebound from the COVID curbs could be undercut in the short term by a jump in infections, while also questioning Russia’s willingness to cut off flows.

“I think that the oil rebound due to these three factors could be short-lived and may offer interesting top selling opportunities for medium-term bears looking for a further dip in oil prices to below $70 [a barrel],” said Ipek Ozkardeskaya, analyst at Swissquote.

Russia “is not harmed by $60 per barrel currently. U.S. supplies will be restored and the Chinese reopening may not be smooth due to potential disruptions in economic activity, because people are sick,” the analyst wrote.

Separately, in a monthly report released Tuesday, the Organization of the Petroleum Exporting Countries left its forecasts for growth in oil demand this year and next unchanged. OPEC expects demand to grow by 2.5 million barrels a day in 2022 and by 2.2 million barrels a day in 2023, unchanged from its November forecast. 

Meanwhile, the Energy Information Administration will release its weekly U.S. petroleum supply report Wednesday morning. On average, analysts expect the report to show a supply decline of 3.5 million barrels for crude, along with inventory gains of 3.2 million barrels for gasoline and 2.5 million barrels for distillates, according to a survey conducted by S&P Global Commodity Insights.

marketwatch 12 13 2022