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Crude oil futures fell this week after back-to-back weekly gains, after hawkish Federal Reserve meeting minutes and cautious comments from several Fed officials helped quell hopes for interest rate cuts that could spur demand of energy.
Fed Governor Chris Waller, for example, said there has been “no rush” to cut rates following stronger-than-expected inflation and economic data since earlier this year.
The United States reported another increase in domestic crude inventories this week along with a low level of refinery activity, while production held near a record 13.3 million bbl/d.
“Concerns that the Federal Reserve will leave interest rates elevated for a longer period have overshadowed slowly growing geopolitical risks, primarily in the Middle East,” StoneX’s Arlan Suderman said, adding that geopolitical risks matter for investors. Crude oil prices, “but they are not currently limiting supplies around the world – just increasing risks.”
But some analysts believe demand has remained broadly healthy despite the impact of high interest rates; JP Morgan said its demand indicators show oil demand rising 1.7 million bbl/d month over month through Feb. 21, compared with a 1.6 million bbl/d increase in the previous week, likely helped by increased travel demand in China and Europe.
Front-month Nymex crude oil (CL1:COM) for April delivery has been established -2.5% to $76.49 this week after Friday’s 2.7% plunge and April Brent crude’s (CO1:COM) close of the first month -2.2% on the week at $81.62/barrel, down 2.4% on Friday.
ETFs: (NYSEARCA:USE), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)
Meanwhile, U.S. natural gas futures gave up most of the gains made midweek on Chesapeake Energy’s plan to reduce drilling and production in 2024 in response to low prices.
While the plan raised expectations of further production cuts, temperature forecasts through early March pointed to a weather-driven lack of demand in the latter part of the heating season.
Nymex March natural gas trailing month (NG1:COM) fell for the fourth consecutive week, -0.3% to $1.603/MMBtu, including Friday’s 7.4% decline; the front-month contract has fallen 40.9% over the past four weeks.
ETFs: (UNG), (BOIL), (COLD), (FCG), (UNL)
In Europe, natural gas prices have continued to decline with no end in sight, while the benchmark TTE gas price stabilizes -0.7% at ~€23/MWh, the lowest level since May 2021, with demand remaining sluggish due to mild weather and a weakening economy, and storage levels even exceeding last year’s already above-average inventories.
Analysts at Commerzbank expect a baseline TTE of 35/MWh by the end of 2024, expecting prices to rise throughout the year as the European economy gradually recovers.
The oil and gas sector, represented by the Energy Select Sector SPDR ETF (NYSEARCA:XLE), Closed +0.5% for the week.
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Source: Barchart.com