Myra P. Saefong and William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 02 03 2023

Oil futures ended lower Friday to tally a weekly loss, as investors awaited clarity on Chinese demand in the wake of the Lunar New Year holiday.

Price action

• West Texas Intermediate crude for March delivery CL.1, -3.49% CL00, -3.49% CLH23, -3.49% fell $2.49, or 3.3%, to settle at $73.39 a barrel on the New York Mercantile Exchange. Front-month prices for the U.S. benchmark settled at their lowest since Jan. 4 and lost 7.9% for the week, according to Dow Jones Market Data.
  
• April Brent crude BRN00, -0.15% BRNJ23, -0.15%, the global benchmark, declined $2.23, or 2.7%, to $79.94 a barrel on ICE Futures Europe. That was the lowest finish since Jan. 9, with prices down 7.5% for the week.
  
  
• March gasoline futures RBH23, -5.28% fell nearly 5.4% to $2.321 a gallon, losing just over 10% for the week.
  
  
• March heating oil HOH23, -3.79% fell 4.2% to $2.7753 a gallon for a weekly loss of nearly 13%.
  
  
• March natural gas NGH23, -2.89% fell 1.9% to $2.41 per million British thermal units. That was the lowest finish since December 2020, down 15% for the week and 46% lower so far in 2023.

Market drivers

It was another rough week for oil as “cooling optimism over the demand outlook and rising U.S. stockpiles kept bears in a position of power,” Lukman Otunuga, manager, market analysis at FXTM, told MarketWatch.

Data released this week showed large 4.1 million–barrel increase in U.S. crude inventories for the week ended Jan. 27, along with weekly increases for gasoline and distillate supplies.

“The inventory build since the beginning of the year amounts to 32 million barrels. Gasoline stocks have recently risen for four weeks in a row by a total of 12 million barrels. Distillate stocks registered their first weekly increase this year,” said Carsten Fritsch, strategist at Commerzbank, in a Friday note. “Stocks normally decline at this time of the year. The U.S. oil market was amply supplied in January, in other words.”

After this week’s price decline, investors will focus on the extent of a demand recovery by China as well as the impact of a European Union embargo on imports of Russian fuel products due to take effect on Feb. 5 and an anticipated deal on price caps will play out, Fritsch said.

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

“Just like with the Russian crude sanctions, the EU ban on Russian oil products is unlikely to take barrels off the market,” Matt Smith, lead oil analyst for the Americas region at Kpler, told MarketWatch. It’s “just going to cause a rejigging of global flows — hence it will have a muted impact.”

In fact, EU-27 countries ramped up their purchases of Russian diesel in recent months to ensure that they are well-supplied, Smith said, noting that Russian diesel exports bound for EU-27 countries reached a record high in December, with flows only starting to materially drop off during January.

At the same time, Chinese product demand is rebounding, led by jet fuel, but the Lunar New Year is “mottling the demand picture, and we should get greater clarity as the economy returns to a more normal environment from next month onwards,” he said.

Meanwhile, the U.S. employment and ISM data released Friday “got some market participants briefly optimistic about oil demand,” said Troy Vincent, senior market analyst at DTN.

The number of new jobs created in January — 517,000 — represented the biggest gain in six months. Separately, an ISM barometer of business conditions rebounded to a 55.2 reading in January after falling into contraction at 49.6 in the prior month.

But the data are “backward looking,” said Vincent.

U.S. refined-fuel demand figures for January show the weakest gasoline demand since January 2021 and diesel demand is down 14% from the year-earlier month, he said. That “calls into question the seasonal adjustments of [Friday’s] macroeconomic data and emphasizes weakness in the industrial sector.”

Also see: Baker Hughes data show a third weekly decline in active U.S. oil-drilling rigs

The U.S. dollar strengthened following the upbeat economic data, with the ICE U.S. Dollar index DXY, +1.22% up 1.2% at 102.94 in Friday dealings. Strength in the dollar can pressure dollar-denominated prices for commodities such as oil.

marketwatch.com 02 03 2023