Oil, natural-gas futures end the week higher

Mayra P. Saefong and William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 12 16 2022

Oil futures settled lower on Friday, pressured after major central banks indicated interest rates will continue to rise and remain elevated next year, stoking fears of a global economic slowdown that could lead to lower energy demand.

Prices, however, ended above the session’s worst levels, as the Energy Department said it would start to repurchase oil to refill the nation’s oil reserve.

For the week, crude posted a solid gain, with support tied to optimism that China’s loosening of COVID-19 curbs will spark a rebound in demand from one of the world’s largest energy consumers.

Price action

• West Texas Intermediate crude for January delivery CL00, 0.74%   CL.1, 0.74%   CLF23, 0.74% fell $1.82, or 2.4%, to settle at $74.29 a barrel on the New York Mercantile Exchange. The U.S. benchmark logged a weekly gain of 4.6%, according to Dow Jones Market Data.
  
  
• February Brent crude BRN00, 0.85%   BRNG23, 0.85%, the global benchmark, was down $2.17, or 2.7%, at $79.04 a barrel on ICE Futures Europe. Brent saw a weekly gain of 3.9%.
  
  
• Back on Nymex, January gasoline RBF23, 0.98% fell 1.6% to $2.1323 a gallon, for a weekly rise of 3.7%.
  
  
• January heating oil HOF23, 0.88% was off 5% at$3.1199 a gallon, ending 11.7% higher for the week.
  
  
• January natural gas NGF23, -6.48% fell 5.3% to $6.60 per million British thermal units, with the contract up 5.7% for the week.

Market drivers

Oil fell alongside equities, feeling pressure after the Federal Reserve on Wednesday delivered a half-point interest rate increase and indicated the fed-funds rate was likely to peak above 5% next year and remain there.

“Global central banks keep suggesting that they are going to win the war against inflation at any cost,” said Phil Flynn, senior market analyst at The Price Futures Group. “One of the casualties the market fears could be a global recession that theoretically will reduce oil demand.”

However, “the reality is that demand destruction based on a mild recession won’t be as bad as people think — if you add to that the reopening of China,” he told MarketWatch.

Read: China’s recovery is key to the 2023 outlook for industrial metals and more

Half-point hikes by other central banks on Thursday, including the Bank of England and the European Central Bank, were seen as driving home expectations for rates to remain elevated, particularly after ECB President Christine Lagarde emphasized that a series of half-point hikes remained a strong possibility in the effort to quash inflation.

See: Stocks end with sharp losses — blame it on Lagarde?

In terms of supplies, the European Union ban on Russia seaborne oil has “not created any disruption,” nor has the implementation of a price cap on Russia barrels, Peter McNally, global sector lead for industrial metals and energy at Third Bridge, told MarketWatch.

The focus of the oil market has increasingly shifted to demand, where downward revisions have become the norm, he said. “There is hope that a reopening in China spurs oil demand, but in the short term, it could prove counterproductive as COVID cases are on the rise again.” 

Somewhat supportive for oil prices on Friday, the U.S. Energy Department said it would start repurchasing crude oil for the Strategic Petroleum Reserve. President Joe Biden had announced in October a plan to buy oil to refill the reserve when prices are at or below about $67 to $72.

Separately, Baker Hughes BKR, -2.31% reported a second straight weekly decline, in the number of active U.S. rigs drilling for oil.

Meanwhile, natural-gas prices saw “choppy” trading this week.

“Cold weather helped a bit, and the China reopening trade helps too, but offset by the 50 [basis point] rate hike and commentary suggesting more hikes down the road until inflation finally caves in,” said Stewart Glickman, energy equity analyst at CFRA Research.

“We think the key for now remains the weather, and that Europe’s goal to replace Russian gas,” a major ordeal, since Russia used to supply 40% of Europe’s natgas needs, helps provide additional liquefied natural gas demand,” said Glickman.

marketwatch .com 12 16 2022