Williams Watts, MarketWatch

NEW YORK
EnergiesNet.com 11 21 2022

Oil futures fell Monday, but ended well off session lows after Saudi Arabia’s energy minister denied a news report that the Organization of the Petroleum Exporting Countries and their allies were weighing a production increase.

Crude was previously under pressure on continued worries over China’s demand outlook in the face of renewed COVID-19 lockdowns.

Price action

• West Texas Intermediate crude for December delivery CL.1, 0.52% CLZ22, -0.42% fell 35 cents, or 0.4%, to close at $79.73 a barrel, after trading as low as $75.08 for its lowest intraday level since January. The most actively traded January contract CL00, 0.50% CLF23, 0.55% fell 7 cents to finish at $80.04 a barrel after dropping more than 5% at its session low.
  
  
• January Brent crude BRN00, 0.57% BRNF23, 0.56%, the global benchmark, lost 17 cents, or 0.2%, ending at $87.45 a barrel. Both Brent and WTI saw their lowest finish since late September.
  
  
• Back on Nymex, December gasoline RBZ22, 2.08% rose $2.437 a gallon.
  
  
• December heating oil HOZ22, 0.45% declined 0.6% to $3.497 a gallon.
  
  
• December natural gas NGZ22, -4.47% jumped 7.5% to $6.776 per million British thermal units.

Market drivers

Both WTI and Brent briefly slumped to levels last seen in January after ending Friday at two-month lows. The Journal, citing unnamed delegates, said Saudi Arabia and other producers from the Organization of the Petroleum Exporting Countries were discussing an output increase of as much as 500,000 barrels a day. Such a move would help ease tensions with the Biden administration and keep energy flowing as new efforts to curtail Russia’s oil industry take effect.

Crude subsequently trimmed losses after news reports said Saudi Arabia’s energy minister told a state news agency that there had been no discussions of an output increase. A production cut by OPEC+ agreed to at the group’s October meeting angered the Biden administration and U.S. lawmakers.

It’s likely premature to consider a production boost, said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a note.

“We believe the recent downward price action driven by renewed concerns about rising Covid case counts and aggressive Fed rate hikes have only bolstered Riyadh’s conviction that they made the right move in October and that they will endeavor to avoid any action that sparks a sharp post-meeting sell-off next month. If anything, today’s price rout will likely only strengthen the hand of those pushing for a cautious policy course until there is clear information about the size of the Russia supply gap following the December 5 launch of the EU sixth package of sanctions and the G7 price cap plan,” she said.

The strong statement from the Saudis “denying an increase is being actively considered, and suggestion that further cuts are not entirely off the table, should give market participants pause about predicting a policy reversal at the next meeting,” Croft wrote.

The southern Chinese city of Guangzhou on Monday locked down its largest district, suspending public transit and requiring residents to present a negative test if they want to leave their homes, the Associated Press reported.

“The prospect of more restrictions and therefore lower demand in China has weighed on crude prices recently. Brent slipped back below $90 last week and could register the fourth day of declines if it remains in the red,” said Craig Erlam, senior market analyst at Oanda. “We’re seeing bleak economic prospects all around the globe which continues to weigh on oil prices and if interest rates keep rising as they are, expectations will likely deteriorate further.”

Natural-gas prices were pushing higher following a historic snowstorm that hit New York state over the weekend, said Christin Kelley, senior commodity analyst at Schneider Electric, in a note.

Meanwhile, NOAA’s 6-to-10-day outlook shows temperatures rising above normal for most of the central U.S., with colder temperatures only predicted for part of the Northeast, which may reduce heating demand in late November, she said, but noting that their updated 3 to 4-week outlook covering early-to-mid December colder-than-normal conditions returning for nearly all the northern U.S., which could boost heating demand again.

marketwatch.com 11 21 2022