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Oil prices end lower as traders rethink demand expectations


By Myra P. Saefong and William Watts

Natural gas prices fell after rising 6% on Monday

Oil futures closed lower on Tuesday, retreating from recent gains that sent prices to their highest level in two months, as the weakness in the US economy prompted traders to rethink their energy demand expectations.

Oil prices have seen some support since the start of the year on continued optimism about the demand outlook from China after the country lifted COVID restrictions.

Natural gas futures, meanwhile, fell after posting a more than 6% gain the day before on forecasts for colder US weather.

Price action

Market drivers

Oil prices fell on “uncertainty about how much increased demand we will see and concerns about a weakening US economy limit the upside,” said Michael Hewson, chief market analyst at CMC Markets UK

“With the latest PMI numbers in Europe and the UK showing signs of weakness despite lower energy prices, some doubts are creeping into any sort of recovery in economic activity,” he said in market commentary.

There were also concerns that weakness in the US could hurt oil demand. On Tuesday, an S&P survey showed that US businesses contracted again in January as demand for goods and services fell for the fourth consecutive month.

However, the survey showed some signs of modest improvement. The US “flash” S&P Global services sector index rose to a three-month high of 46.6 from 44.7 in December. The services side of the economy employs the majority of Americans. Any number below 50 suggests a shrinking economy.

Crude oil prices saw a mixed finish on Monday, with WTI losing ground as Brent extended its winning streak into session three. Expectations of a recovery in demand for crude oil from China served to support crude oil after a decline earlier in the year.

On February 5, the European Union will impose a ban on imports of refined petroleum products from Russia, and a cap on Russian petroleum products will also come into force. This follows the EU embargo and the G7 price cap on Russian seaborne oil last month.

“A key question is whether these measures are already lowering or will further reduce Russian oil production,” Stephen Innes, managing partner at SPI Asset Management, said in a market update.

Meanwhile, the OPEC+ Joint Ministerial Monitoring Committee (JMMC), which reviews the oil market, is scheduled to meet on February 1. The next full meeting of members of the Organization of the Petroleum Exporting Countries and their allies is scheduled for June.

The JMMC should “endorse the producer group’s current output policy and hope that Chinese demand offsets concerns about inflation and the global economic slowdown,” Kansas City Energy wrote to StoneX in a report Tuesday. .

The United States will receive a weekly update on oil supplies from the Energy Information Administration on Wednesday. On average, analysts expect the report to show supply declines of 2.4 million barrels for crude oil, 100,000 barrels for gasoline and 1.6 million barrels for distillates, according to a survey conducted by S&P Global Commodity insights.

It’s the second week in a row with no oil release from the Strategic Petroleum Reserve, “but at the same time, refinery maintenance could lead to an increase in crude supply,” said Phil Flynn, senior market analyst at The Price Futures Group. Market Watch.

There is “an expectation that we could see increased supply at the Cushing, Okla delivery location,” he said. However, petroleum products are “still very limited and the focus will be on petrol and diesel supplies”.

Natural gas rebounded this week after a sharp decline earlier in the year on unseasonably warm temperatures across much of the United States. However, it remains more than 20% down so far in January after a sell-off that left the commodity deeply oversold and vulnerable to a short-covering rally decline, analysts at Sevens Report Research wrote.

“Looking ahead, it is likely to trade more volatile with the market susceptible to squeezy rallies, but the current trend is decidedly bearish right now with a break below $3.00 a distinct possibility in the coming months,” they wrote.

-Myra P.Saefong

(END) Dow Jones Newswires

01-24-23 1505ET

Copyright (c) 2023 Dow Jones & Company, Inc.

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