Myra P. Saefong and William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 02 13 2023

Oil futures posted a gain on Monday, with prices settling at their highest level so far this month.

Traders weighed the outlook for global oil demand and Russia’s recent decision to cut production, and awaited U.S. inflation data due out Tuesday — for hints on the Federal Reserve’s next move on interest rates and the outlook on the U.S. economy.

Price action

• West Texas Intermediate crude for March delivery CL00, -1.07% CL.1, -1.07% CLH23, -1.07% rose 42 cents, or 0.5%, to settle at $80.14 a barrel on the New York Mercantile Exchange. Prices logged the highest finish for a front-month contract since Jan. 26, according to Dow Jones Market Data.
  
  
• April Brent crude BRN00, -0.70% BRNJ23, -0.70%, the global benchmark, added 22 cents, or nearly 0.3%, at $86.61 a barrel on ICE Futures Europe, the highest finish since Jan. 27.
  
  
• March gasoline RBH23, -0.69% climbed by 1.1% to $2.5311 a gallon.
  
  
• March heating oil HOH23, 0.65% rose 1.4% to $2.9057 a gallon.
  
  
• March natural gas NGH23, 1.91% lost 4.3% to $2.405 per million British thermal units.

Market drivers

There has been “light trading across all markets waiting on the CPI data” due out Tuesday, Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch.

Traders will look to the January U.S. consumer-price index for clues to the Federal Reserve’s interest-rate path and whether the U.S. will see a hard or soft landing for the economy.

Economists polled by The Wall Street Journal forecast a 0.4% increase in the January CPI, which would slow the year-over-year rate to 6.2% from 6.5% in December. Year-over-year CPI peaked at a roughly 40-year high of 9.1% last summer. Core CPI, which excludes volatile food and energy prices, is expected to rise 0.3% in January, with the year-over-year rate at 5.4% versus 5.7% in December.

Treasury yields rebounded last week as investors moved expectations for rates closer to the Fed’s forecasts for a peak rate above 5% and scaled back expectations for a rate cut by year-end. The Fed has maintained that rates are unlikely to fall in 2023.

See: Inside Germany’s industrial-sized effort to wean itself off Putin and Russian natural gas – MarketWatch

Zahir pointed out that the U.S. government has told its citizens to leave Russia immediately. “As a potential large offensive looks imminent in Ukraine, we are not surprised to see oil start to gain some strength.”

On Friday, oil prices declined after Brent and WTI climbed by more than 2%. Both grades of crude tallied weekly gains of more than 8% after Russia said it would cut production by 500,000 barrels a day in March. WTI and Brent are both down for the year and over the last 12 months.

Read: Why U.S. fuel prices continue to feel the effects of Russia’s invasion of Ukraine

The physical market for crude remains soft, analysts said.

North Sea and West African, or WAF, Atlantic Basin crudes are the marginal barrels in the market, said Michael Tran, commodity and digital intelligence strategist at RBC Capital Markets, in a note. While there were signs of a pickup in WAF loadings for February last week, major North Sea streams remain soft, leaving the overall picture mixed.

“This means that either, China’s post COVID ramp has not been meaningful enough to tighten the physical market (yet), or demand elsewhere remains uninspiring,” Tran said. “Either way, there remains slack in the physical crude system, for now.”

Geopolitical tensions are also a focus among traders, said Naeem Aslam, chief market analyst at AvaTrade, after the U.S. military recently shot down a fourth unidentified object. There were concerns among traders that this unidentified object could be a Chinese spy balloon, he said.

“The fear here is that things can get out of control and tensions could flare up between the two major superpowers, which could adversely influence sentiment among traders,” said Aslam.

Meanwhile, prices for natural gas saw their first decline in three sessions.

Short-term mild weather outlooks overshadowed signs of a possible restart of the Freeport LNG export plant, said Victoria Dircksen, commodity analyst at Schneider Electric, in a daily note.

Gas flows to Freeport spiked on Monday to 0.5 billion cubic feet per day, the highest level since the facility first shut down due to a fire in June 2022, signaling the plant has started liquefying gas,” she said.

marketwatch.com 02 13 2023