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Oil shakes off China COVID worries to end higher on Tuesday; natural gas extends slide

A huge jet of flame bursting from an oil platform lights up the sky in a file photo.
A huge jet of flame bursting from an oil platform lights up the sky in a file photo. (AFP)

William Watts, MarketWatch

EnergiesNet.com 12 20 2022

Oil futures ended a choppy session on the plus side, finding support from a weakening U.S. dollar as traders monitored a continued surge in COVID-19 cases in China.

Natural-gas futures, meanwhile, extended a drop after plunging in Monday’s session as U.S. weather forecasts moderated.

Price action

  • West Texas Intermediate crude for January delivery CL.1, 1.21%   CLF23, +1.10% rose 90 cents, or 1.2%, to end at $76.09 a barrel on the New York Mercantile Exchange. February WTI CL00, 1.02%   CLG23, 1.01%, the most actively traded contract, gained 85 cents, or 1.1%, to finish at $76.23 a barrel.

  • February Brent crude BRN00, 1.09%   BRNG23, 1.10%, the global benchmark, gained 19 cents, or 0.2%, to close at $79.99 a barrel on ICE Futures Europe.

  • Back on Nymex, January gasoline RBF23, 0.31% rose 2.1% to $2.2228 a gallon.

  • January heating oil HOF23, 1.86% closed 0.2% higher at $3.0589 a gallon.

  • January natural gas NGF23, 3.70% declined 9% to $5.326 per million British thermal units, extending a decline after a drop of more than 11% in Monday’s session.

Market drivers

While China’s relaxation of COVID curbs is seen as a potential long-term positive for crude, a surge in infections and fears of a heavy death toll have offset initial optimism.

“After an extended bout of long liquidation, and with positioning much more balanced, bullish sentiment is creeping back into oil traders’ purview, primarily based on China’s reversal of its zero-COVID policy,” said Stephen Innes, managing director of SPI Asset Management, in emailed comments. “And despite all the economic fear and recession hype, oil continues to find buyers on dips, proving itself as one of the most needful commodities in the world.

“But punchy speculative gains continue to be stifled by demand implication over the worrisome 2nd and 3rd wave Omicron case projections that are weighing on broader China’s near-term economic forecasts. Not to mention year-end liquidity concerns are keeping many traders grounded,” he said.

ReadChina predicts COVID ‘normalcy’ within months, but experts forecast more than 1 million deaths

A weaker U.S. dollar was providing support for crude, analysts said. A weaker dollar can be a positive for commodities priced in the unit, making them less expensive to users of other currencies.

The U.S. dollar fell versus major rivals, with the Japanese yen USDJPY, -0.09% jumping after the Bank of Japan widened the band around the yield on the country’s 10-year government bond TMBMKJP-10Y, 0.479%, allowing it to trade 50 basis points on either side of 0% versus its previous band of 25 basis points. The ICE U.S. Dollar Index DXY, 0.09%, a measure of the currency against a basket of six major rivals, was down 0.7%.

Read: Why the Bank of Japan’s surprise policy twist is rattling global markets

Crude is also finding underlying support from the Biden administration’s plan, announced Friday, to buy 3 million barrels of crude in February to replenish the Strategic Petroleum Reserve.

“The U.S. government had already announced in October that the purchases would happen once the WTI price was in or below a corridor of $67-72 per barrel. Though the front-month WTI forward contract is somewhat above this level just now, forward contracts with a maturity date in a year’s time or later are already within or even below this range,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note. “The expected reserve purchases are likely to prevent any further slide of the WTI price, for example in the event of persistent demand concerns.”

U.S. natural-gas futures, meanwhile, continued to sink after Monday’s plunge, as near-term weather forecasts predict warmer-than-average temperatures spreading from the West to the Midwest.

marketwatch.com 12 20 2022

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