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Futures Movers: Oil futures finish at multiyear highs as Russia’s offer to boost natural-gas supplies may come with a catch

Oil futures climbed on Tuesday to finish at fresh multiyear highs, on reports that Russia’s offer to boost natural-gas supplies to Europe may come with a catch.

Russia has indicated that it may not provide additional natural gas to European consumers amid an energy crunch in the region, unless it gets regulatory approval to start shipments through the Nord Stream 2 pipeline, Bloomberg reported Tuesday, citing people close to state-run gas giant Gazprom and the Kremlin. The controversial pipeline can run natural gas from Russia into the European Union, but awaits regulatory approval.

It looks like Russia may not increase natural gas shipments to Europe, Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch. It’s been widely reported, however, that Russia, for its part, said it has fulfilled its contractual obligations to supply natural gas to Europe.

The Russians are” in no hurry whatsoever to comply” with demands from the European Union, said Flynn. “Europe decided to play Russian roulette [by] depending on Russia as a reliable supplier of natural gas, and now it looks like they lost.”

““Europe decided to play Russian roulette [by] depending on Russia as a reliable supplier of natural gas, and now it looks like they lost.””

— Phil Flynn, The Price Futures Group

West Texas Intermediate crude for November delivery
CLX21,
+0.49%

rose 52 cents, or 0.6%, to settle at $82.96 a barrel on the New York Mercantile Exchange, the highest front-month contract finish since Oct. 13, 2014, according to Dow Jones Market Data. The contract expires at the end of Wednesday’s trading session. December WTI
CL00,
+0.65%

CLZ21,
+0.65%
,
the most actively traded contract, added 75 cents, or 0.9%, at $82.44 a barrel.

December Brent crude
BRN00,
-0.19%

BRNZ21,
-0.19%
,
the global benchmark, settled at $85.08 a barrel on ICE Futures Europe, up 75 cents, or 0.9%, to settle at the highest since Oct. 3, 2018. Brent prices on Monday briefly pushed above $86 a barrel to hit a three-year intraday high, but retreated to finish slightly lower.

Any “shortfalls in natural gas will clearly lead to added demand for crude,” said Edward Moya, senior market analyst at Oanda. However, “Russia is known to always be posturing.”

See: Lofty prices for natural gas may fuel a swing back to oil as a power source

November natural gas
NGX21,
+1.80%

settled at $5.088 per million British thermal units, up 2%. Prices shook off early Tuesday declines after losing 7.8% on Monday.

See: Why U.S. consumers will pay more for natural gas this winter

Brent crude climbed Tuesday amid expectations supplies will remain tight, said Carsten Fritsch, analyst at Commerzbank, in a note. A report from Reuters on Monday said that OPEC+ countries were 115% in compliance with output cuts in September, showing that members are struggling to meet targets after the group agreed earlier this year to ease production restrictions in monthly increments of 400,000 barrels a day.

Read: Why soaring oil prices could soon make the stock market sputter

Even if OPEC+ hit its target, it wouldn’t be enough to plug the gap between demand and supply, Fritsch said.

Still, “the soft economic data, both in China and the U.S., weighed some on the demand outlook for the weeks and months ahead as weaker demand would at least partially offset the tailwind of the deeper [supply] deficit in the physical market,” analysts at Sevens Report Research wrote in Tuesday’s newsletter.

U.S. industrial production fell a sharp 1.3% in September, the Federal Reserve reported Monday. Meanwhile, GDP data on Monday showed that China’s economy grew 4.9% in the third quarter from a year prior, down steeply from the second quarter’s 7.9% rate.

“Bottom line for oil, futures just notched their eighth-consecutive weekly rise and prices are technically overbought with WTI in the low $80s here,” the Sevens Report analysts said. The dominant trend in the energy market is still bullish” but for now, support for the U.S. benchmark lies near $79 a barrel.

For Brent, resistance is near $87 ” as traders and funds reassess the risk and reward of betting on crude moving into the $90s, following continued signs of weakness in China and amid rising crude stocks in the U.S.,” Troy Vincent, market analyst at DTN, told MarketWatch.

The oil market awaits weekly data on petroleum supplies, with official data due out from the Energy Information Administration on Wednesday.

On average, analysts expect US. crude supplies to climb by 2 million barrels for the week ended Oct. 15, according to a poll conducted by S&P Global Platts. They also forecast weekly inventory declines of 2.2 million barrels for gasoline and 2.4 million barrels for distillates.

On Nymex Tuesday, November gasoline
RBX21,
-0.58%

lost nearly 0.5% at $2.476 a gallon, while November heating oil
HOX21,
+0.22%

tacked on almost 0.5% to $2.561 a gallon.

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