Natural-gas futures down over 2% for the week

Myra P. Saefong and William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 01 28 2023

Oil futures declined on Friday, with U.S. prices below $80 a barrel and settling at their lowest in more than a week, as uncertainty over the outlook for the market climbed ahead of an OPEC+ committee meeting and European Union ban on Russia oil products.

Prices for oil had gained in early dealings, buoyed by improving demand prospects driven by China’s economic reopening and expectations that the U.S. economy could achieve a “soft landing” and avoid a recession later this year.

Price action

• West Texas Intermediate crude for March CL.1, -0.38% CL00, -0.38% CLH23, -0.38% delivery fell by $1.33, or 1.6%, to settle at $79.68 a barrel on the New York Mercantile Exchange, down from an intraday high of $82.48. Based on the front-month contract, prices settled 2.4% lower for the week, at their lowest since Jan. 18. according to Dow Jones Market Data.
  
  
• March Brent crude BRNH23, -0.38%, the global benchmark, lost 81 cents, or 0.9%, to $86.66 a barrel on ICE Futures Europe, for a weekly decline of 1.1%. April Brent BRN00, -0.22% BRNJ23, -0.22%,  the most actively traded contract, fell 88 cents, or 1%, to $86.40.
  
  
• Back on Nymex RBG23, -0.39%, February gasoline shed 0.9%, to $2.5886 a gallon, with prices down nearly 2.2% for the week.
  
  
• February heating oil fell 3.9% to $3.2655 a gallon, posting a 5.8% weekly loss.
  
  
• February natural gas  NGG23 tacked on 5.6% to settle at $3.109 per million British thermal units. The contract, which expired at the settlement, ended down 2.1% for the week. March natural gas  NGH23, +0.21%, the new front-month contract, added less than 0.1% to $2.849 per million BTUs.

Market drivers

Oil traders aimed to book profits ahead of the end of month and took a “safe position” ahead of the an OPEC+ committee meeting and the Federal Reserve’s monetary policy decision both on Feb. 1, and the European Union’s ban on imports of Russian oil products on Feb. 5, said Phil Flynn, senior market analyst at The Price Futures Group.

Read: The EU’s latest embargo on Russia will keep diesel prices high

Traders pulled back after WTI prices failed to move above the $82.66 monthly high, Flynn said.

Oil prices posted losses for the week, but that’s after posting two consecutive weeks of gains.

Market analysts pointed to several factors for the recent rise in crude-oil prices, including a U.S. economy that’s holding up stronger than expected, China’s reopening after lifting COVID restrictions, and the expectation that the Organization of the Petroleum Exporting Countries and its allies won’t boost production.

“OPEC remains a critical piece of the puzzle,” said Stephen Innes, managing partner at SPI Asset Management, in emailed commentary. “Because of the voiced frustration with the Western energy policies, including the price cap on Russian oil, and the risk it creates precedents, it will most certainly limit the group’s willingness to raise production and play ball with the West.”

The OPEC+ Joint Ministerial Monitoring Committee (JMMC), which reviews the oil market and has no ability to make official production policy decisions, will meet on Feb. 1. The next full meeting of the policy-setting OPEC+ is scheduled for June.

Read: OPEC+ committee meets next week with ample oil uncertainties to discuss

Oil agencies expect “solid global oil demand growth with a significant contribution from China, and subject to the burden of proof, many traders think it could push the market back into deficit from June onwards” and drive Brent back up to $105 a barrel by the fourth quarter of this year, said Innes.

“However, if the oil market turned out to be softer than most forecast, then OPEC should be able to put a floor under prices given its strong pricing power,” he said. “OPEC could keep its production lower for long beyond its June 4th meeting or implement further cuts.”

Traders will also weigh the impact of the EU ban on imports of Russian oil products, and an expected price cap on Russia oil products on Feb. 5.

The coming price cap on Russian refined products proposed today of $100 per barrel on premium oil products and $45 per barrel on low value products “relieved fears of a major constraining impact set to follow from this coming price cap,” Troy Vincent, senior market analyst at DTN, told MarketWatch. The proposed caps “wouldn’t be restrictive for diesel or gasoline sales at current market prices.”

Meanwhile, natural-gas futures saw a strong rebound on Friday, the front-month contract’s expiration day, after settling Thursday at the lowest since May 2021. Prices still fell for the week, and trade over 30% lower year to date.

“Mild weather forecasts, elevated production levels, and healthy inventory levels are all contributing to the sharp downtrend right now,” analysts at Sevens Report Research wrote in Friday’s newsletter. “Futures remain oversold and a potentially violent short-covering rally is possible near term, but there is no sign of a bottom forming in the natural-gas market yet.”

marketwatch.com 01 28 2023