Stock

Futures Movers: Oil ends decrease, with merchants caught between demand prospects, OPEC+ expectations

Oil futures finished lower Thursday, with pressure from worries about the outlook for energy demand partially offset by prospects for a production cut next week by the Organization of the Petroleum Exporting Countries and its allies.

Price action

West Texas Intermediate crude for November delivery
CL.1,
-0.80%

CL00,
-0.80%

CLX22,
-0.80%
fell 92 cents, or 1.1%, to settle at $81.23 a barrel on the New York Mercantile Exchange following a gain of nearly 4.7% on Wednesday.

December Brent crude
BRN00,
+0.31%

BRNZ22,
+0.31%,
the most actively traded contract for the global benchmark, was down 87 cents, or 1%, at $ $87.18 a barrel on ICE Futures Europe. November Brent
BRNX22,
+0.20%,
the front-month contract which will expire at the end of Friday’s session, declined by 83 cents, or 0.9%, at $88.49 a barrel.

Back on Nymex, October gasoline
RBV22,
-2.58%
fell 2.7% to $2.5076 a gallon, while October heating oil
HOV22,
-1.11%
lost 1% to $3.4146 a gallon. Both October contracts expire Friday.

November natural gas
NGX22,
-0.73%
fell 1.2% to $6.874 per million British thermal units.

Market drivers

Oil prices were holding onto a gain for the week, bouncing off eight-month lows. A rally by the dollar relented, after taking the U.S. Dollar Index
DXY,
-0.43%
to a 20-year high, while traders turned their attention to the prospect of a production cut by OPEC+, which is comprised of the Organization of the Petroleum Exporting Countries and their allies.

But analysts said the tone for crude remains weak, with worries that aggressive monetary tightening by the Federal Reserve and other major central banks will sink the global economy, outweighing worries over the Russia-Ukraine war and other supply concerns.

“The lack of a disruption risk premium makes it clear: The market fears Fed Chair Powell more than it fears escalatory conduct from [Russian President] Vladimir Putin or OPEC’s ability to defend the market,” said Michael Tran, commodity analyst at RBC Capital Markets, in a note.

A statement from the North Atlantic Treaty Organization said all “currently available information” points to the damage to the Nord Stream 1 and 2 pipelines that has resulted in a series of leaks was the result of “deliberate, reckless, and irresponsible acts of sabotage.” NATO did not identify a perpetrator.

See: As fourth Nord Stream leak is discovered, here’s what scientists are saying about the environment impact

Also see: Nord Stream pipeline leaks remind Europe it can’t rely on natural gas from Russia

Meanwhile, OPEC+ members have discussed a potential production cut ahead of a meeting next week, Reuters reported. The report said Russia could suggest a cut of up to one million barrels a day.

Tran, however, said OPEC+ faces a dilemma after Saudi Arabia previously complained of a disconnect between a soft futures market and a tight physical market.

“The group symbolically cut 100,000 barrels a day earlier this month. Larger cuts over the near term would signal a concession that physical demand is worse than initially assessed. Cut too little and the market shrugs it off,” Tran said. “That is the Catch-22.”

Crude also found some support from Hurricane Ian, which made landfall in Florida Wednesday as a violent Category 4 storm. The Bureau of Safety and Environmental Enforcement had estimated Wednesday afternoon that approximately 9.12% of the current oil production and 5.95% of the natural gas production in the Gulf of Mexico had been shut in.

See: Hurricane Ian: These stocks could feel the storm’s impact

On Thursday, U.S. natural-gas futures headed sharply lower, looking to give back all of Wednesday’s 2.9% climb and then some.

The U.S. Energy Information Administration reported Thursday that domestic natural-gas supplies rose by 103 billion cubic feet for the week ended Sept. 23. That compared with the average analyst forecast for an increase of 93 billion cubic feet, based on a survey conducted by S&P Global Commodity Insights.

Oil outlook

Matt Parry, head of long-term research at Energy Aspects, said he remains “optimistic” that prices will rise back above $100 in the fourth quarter.

The “fundamentals remain tight, but right now everyone is focusing on the macro story,” he told MarketWatch. “The fundamentals in oil are bullish from year-end and the physical market is already reflecting that.”

Once the drawdowns from the Strategic Petroleum Reserve finish, commercial stocks will “draw aggressively,” he said.

“Price action in spreads this year clearly shows how low stocks remain, even if commercial stocks have failed to draw,” said Parry.

See: Supply ‘lag’ helps lithium triple its prices in a year

Also read: Lumber prices have dropped by more than 60% this year, and have room to fall even further

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