Market Watchers Look at The Week's Oil and Gas Moves

Market Watchers Look at The Week's Oil and Gas Moves

Updated: 3 months, 11 days, 2 hours, 36 minutes, 29 seconds ago

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author)

In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers focus on oil and gas price moves, inventory figures, political developments and more. Read on for more detail.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: Crude prices started the week on a lower note as global economic growth concerns lingered in the market but rose later on a largely bullish inventory report. WTI fell short of the $89.80 per barrel mark while Brent crude pushed up towards $97.30. Both grades look to settle higher week-on-week. China reported 3Q GDP of +3.9 percent which was below the Communist Party’s +5.5 percent target. The Purchasing Manager Indices (PMI) for both the EU and the UK fell last month signaling contraction. The ECB and Bank of England are expected to raise interest rates which could lead to more stifled growth.

This week’s EIA Weekly Petroleum Status Report indicated that inventories of commercial crude rose by 2.6 million barrels to 440 million, still at two percent below normal for this time of year. The API reported that inventories rose 4.5 million barrels while the WSJ survey predicted an increase of 600,000 barrels. Refinery utilization dropped to 88.9 percent vs 89.5 percent the prior week. Total motor gasoline inventories decreased by 1.5 million barrels to 208 million barrels, now at six percent below average. Distillates increased 17,000 barrels to 106 million barrels, holding at 20 percent below normal. Crude oil stocks at the key Cushing, OK, hub rose 2.6 million barrels to 27 million barrels or 35 percent of capacity. Imports of crude were 6.2 million barrels per day, up from 5.9 million barrels per day prior week while crude exports were 5.1 million barrels per day, up from 4.1 million barrels per day. Exports of refined products were 6.3, up from 5.3 million barrels per day. The combined raw crude and refined products exports surpassed the record set just back in August. Volumes withdrawn from the Strategic Petroleum Reserve were 3.4 million barrels, which dropped the total inventory to 402 million barrels. Traders attributed this as the main reason for the weekly rise in commercial oil inventories. U.S. oil production was steady at 12.0 vs 11.3 million barrels per day last year at this time. ULSD futures prices are up almost 70 percent year-to-date even though demand is down two percent from last year at this time. However, U.S. distillate exports have risen 50 percent from year-ago levels. NYMEX November ULSD futures have traded as high as $4.37 per gallon, the highest level since last June. The IEA foresees global fossil fuel demand peaking at some point during the current decade as governments make good on policy goals.

Higher oil demand in China has pushed day rates for VLCCs to their highest level since June 2020. China is attempting to increase inventories ahead of winter while also exporting higher levels of refined products. Last month, China increased its imports of Russian crude by 22 percent vs year-ago levels but is still importing about two percent less oil overall than last year. In a case of ‘the pot calling the kettle black’, Saudi Arabia's energy minister criticized the release of emergency oil stocks and characterized it as ‘an attempt to manipulate markets’. All three major stock indexes moved higher on the week. The U.S. Dollar is trending downward this week as investors move back into equities as the U.S. Q3 GDP grew at a 2.6 percent rate, reversing the declines in the first two quarters. The market remains concerned over inflation, however, which could lead to further interest rate hikes by the U.S. Fed that are seen as slowing growth.

Vikas Dwivedi, Global Oil and Gas Strategist for Macquarie Group: Brent price action was largely rangebound during the week as the market tries to absorb the impact of upcoming Russian sanctions, slowing SPR draws and increasing demand risk due to inflationary and recessionary pressures in 2023. Additionally, the WTI-Brent spread widened over the week, largely as expected due to rising freight costs and growing U.S. production. 

Rigzone: What were some market surprises?

Seng: Natural gas prices are moving lower as storage volumes improve and an LNG tanker backlog in Europe may lead to fewer tankers to load here in the U.S., which could further hurt prices. EU natural gas storage levels are now estimated to be at 93 percent, a dramatic turnabout from just two months ago. Additional pressure on pricing is also coming from the Permian Basin in West Texas where oil producers are seeing negative prices in the daily swing market. A lack of gathering and processing infrastructure, along with limits on flaring, have producers scrambling for markets to take the associated gas. Heating oil suppliers in the Northeast U.S. and New England are starting to ration heating oil due to inventories that are 1/3 of their normal level heading into winter. In a fast reversal, the UK’s new Prime Minister, Rishi Sunak, reinstated the ban on hydrofracturing just weeks after the short-term PM, Liz Truss, had suspended it given the dire energy circumstances in the EU and UK.

Dwivedi: Sweet grade differentials softened during the week, which was a bit surprising after they had just started strengthening a few weeks ago. Physical market indicators are experiencing more frequent directional changes than is typical and last week was another example of this trend. West African grades in particular fell roughly 30 cents per barrel. Similarly, DFL swaps weakened to near flat from approximately +20 cents per barrel during the week. 

To contact the author, email andreas.exarheas@rigzone.com