Myra P. Saefong and Barbara Kollmeyer, MarketWatch

SAN FRANCISCO/MADRID
EnergiesNet.com 08 19 2022

Oil futures settled higher on Friday, but the potential for an Iranian nuclear deal that may lead to higher global supplies and the potential for a slowdown in energy demand kept prices lower for the week.

Price action

• West Texas Intermediate crude for September delivery CLU22, -0.90%   CL.1, -0.90%  rose 27 cents, or 0.3%, to settle at $90.77 a barrel on the New York Mercantile Exchange, with front-month contract prices settled at their highest in a week. WTI was 1.4% lower for the week, according to Dow Jones Market Data.
  
  
• October Brent crude BRNV22, -0.65% BRN00, -0.65%, the global benchmark, added 13 cents, or 0.1%, to $96.72 a barrel on ICE Futures Europe. It lost 1.5% for the week.
  
  
• Back on Nymex, September gasoline  RBU22, -0.63% fell 0.3%, to $3.0175 a gallon, posting a weekly loss of 0.9%.
  
  
• September heating oil  HOU22, -0.51% added 1.4% to $3.7005 a gallon, ending 5.2% higher for the week.
  
  
• September natural gas NGU22, -0.60% settled at $9.336 per million British thermal units, up 1.6% for the session to climb 6.5% for the week. It topped Tuesday’s price finish to mark a fresh 14-year high.

Market drivers

“The energy market in the U.S. is a smooth sail compared to the complete chaos in Europe, where a trifecta of a massive [natural] gas shortage, a tragic drought and insane electricity prices [have] turned the markets upside down,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.

Oil prices gave up early Friday declines, even with U.S. benchmark stock indexes lower as investors braced for more volatility amid concerns the Federal Reserve was far from done with interest rate increases.

Much of the bearish pressure for oil this week came from the “dollar’s hot streak, hitting one-month highs and gaining over 2.5% in the past 6 trading sessions,” analysts at the Kansas City energy team at StoneX wrote in a Friday newsletter.

Federal Reserve officials spoke of the need for further rate hikes and investors seemed to reassess Wednesday’s minutes from the U.S. central bank’s July meeting “as being more hawkish than before,” they said. “It seems many officials are on board for another 50–75-point rate hike in September.”

Oil traders have fretted over the possibility of higher U.S. interest rates that could bring on a recession and cut demand for the commodity.

Meanwhile, supporting a mixed price environment for oil, which rose Friday, but fell for the week, data Wednesday from the Energy Information Administration showed “robust demand, while Russia showed its robust ability to find new buyers” for its oil, said Raj.

Next week’s EIA report will be closely watched “to see whether this week’s solid demand was just an anomaly or the new norm,” he said.

Oil traders also kept an eye on developments tied to the Iran nuclear deal. A revival of the deal could lead the U.S. to lift sanctions on Iran which in turn would be allowed to contribute more oil to the global market.

The Iran nuclear deal seems to be “stuck in a vacuum, crushing hopes of additional supplies,” said Raj.

See: Iran deal tantalizingly close but U.S. faces new hurdles

Elsewhere in energy trading, natural-gas futures finished higher after posting back-to-back losses. They topped Tuesday’s settlement to mark a fresh 14-year high.

Russia’s state-owned energy exporter Gazprom said Friday that it would shut down the Nord Stream natural-gas pipeline to Germany for three days for maintenance later this month, according to The Wall Street Journal.

Read: Why natural-gas prices are holding near 14-year highs

Also see: Diesel and natural-gas prices stay high, feeding food price inflation

‘Sticky’ Russian oil

Russian crude output holding up better than expected prompted Warren Patterson, head of commodities strategy at ING, to cut his oil forecasts in a note dated Friday titled “Sticky Russian oil output requires a crude rethink.”

ING’s third and fourth-quarter Brent forecasts were cut from $118 a barrel and $125 a barrel to $100 and $97, respectively. ING’s full-year 2023 Brent forecast has been reduced from $99 to $97, he said.

“Since Russia’s invasion of Ukraine, it has become more difficult to get transparency on Russian oil output with the government no longer publishing monthly data. However, the IEA estimates that Russian oil production was around 310Mbbls/d below prewar levels in July. The decline in output has been much more modest than many in the market were expecting, despite sanctions,” said Patterson.

“Stubborn Russian oil output and weaker than expected demand growth mean the oil market is likely to remain in surplus for the remainder of this year and into early next year, which should limit the upside in oil prices. Time spreads also point toward a looser market, with the backwardation in the prompt spreads narrowing significantly in recent weeks,” he added.

marketwatch.com 08 19 2022