Oil prices continue to decline on Wednesday after falling by more than 4% in the previous session.
Pressure on the market continues to have traders doubts about the prospects for demand for oil in China, where there remains a high incidence of COVID-19 after the removal of most of the quarantine restrictions.
“We believe that demand for commodities in China will remain weak in the first quarter of the beginning of the year, given the ongoing recession in real estate, a new wave of COVID-19 disease and weak export demand,” notes Capital Economics analyst Caroline Bain.
Meanwhile, fears of energy shortages in the global market during winter, which supported prices in recent months, are weakening, given the milder-than-expected winter weather in the U.S. and Europe, notes Bloomberg.
March Brent crude futures on the London-based ICE Futures exchange were at $81.93 a barrel by 7:10 a.m. Wednesday, down $0.17 (0.21%) from the previous session’s closing price. Those contracts fell $3.81 (4.4%) to $82.1 a barrel at the close of trading on Tuesday.
The price of WTI futures for February at electronic trades of NYMEX fell by that time by $0.27 (0.35%) to $76.66 per barrel. By the close of previous trading the cost of those contracts fell by $3.33 (4.2%) to $76.93 a barrel.
At the end of 2022 Brent has risen by 10.5%, WTI – by 6.7%.
Oil prices are changing weakly on Wednesday morning amid low trading volumes during the short pre-New Year’s week.
Investors are assessing the supply and demand situation in the global fuel market and are closely following news from China and the United States.
The value of February futures for Brent at London’s ICE Futures Exchange didn’t change since yesterday’s close of trading and was $84.33 per barrel by 7:15 pm (KSC). At the end of Tuesday’s trading these contracts rose by $0.41 (0.5%).
The price of WTI futures for February at electronic trades of the New York Mercantile Exchange (NYMEX) is $79.58 per barrel by that time, which is $0.05 (0.06%) above the final value of the previous session. The contract fell by 3 cents (0.1%) to $79.53 per barrel at the end of last session.
The oil was traded in plus for the most part of the session the day before on the news that Chinese authorities would cancel obligatory quarantine for those coming to the country since January 8. Analysts believe that the removal of the last restrictions will accelerate the growth of the world’s second-largest economy and increase the demand for fuel.
The market was also supported by reports that the production of petroleum products at major U.S. refineries was suspended due to a snowstorm. As early as Tuesday, however, operations began resuming.
“Throughout 2022, lockdowns in China led to sharp short-term drops in demand, and now many are raising their expectations for 2023,” said Robbie Fraser of Schneider Electric. – But recession risks and rising interest rates remain major negatives for oil futures, limiting any attempt to move higher.
Oil prices rose on Friday and finished in the plus for the second week in a row amid a decline in US inventories and improved demand prospects due to the easing of anti-coveting restrictions in China.
The price of February futures on ICE Futures Exchange in London was $81.57 per barrel by 7:15 am on Friday. Those contracts fell by $1.22 (1.5%) to $80.98 a barrel at the close of trading on Thursday.
The price of WTI futures for February at electronic trades of NYMEX grew by that time by $0.71 (0.92%) to $78.2 per barrel. By closing of previous trades the cost of these contracts has gone down by $0.8 (1%) to $77.49 per barrel.
Trading activity in the oil market declined sharply before the holidays, adding to its volatility, Bloomberg noted.
“Traders seem to be ready for the vacations,” said Ed Moya, chief oil market analyst at Oanda. – The most important factor for the market remains the situation in China, and the optimism that the lifting of restrictions will continue and the demand for oil will increase, remains.”
Market participants are also following the news from the U.S., where natural gas production is falling due to difficult weather conditions in key production regions which were hit by a snowstorm. According to Bloomberg, gas production in the states on Thursday fell to less than 96 billion cubic feet, compared with 100 billion feet on Wednesday.
Oil is rising in price on Thursday morning after a significant increase in the previous session, caused by a reduction in fuel stocks in the U.S.
The value of February futures on London’s ICE Futures Exchange is $82.54 per barrel by 8:55 Moscow time, which is $0.34 (0.41%) above the level at the end of the previous session. At the close of trading on Wednesday these contracts rose by $2.21 (2.8%) to $82.2 a barrel.
The price of WTI futures for February at electronic trades of the New York Mercantile Exchange (NYMEX) is $78.67 per barrel by that time, which is $0.38 (0.49%) above the final value of the previous session. The contract rose by $2.06 (2.7%) to $78.29 per barrel at the end of last session.
Last week stocks of oil in the U.S. fell by 5.9 million barrels, said the Energy Department the day before. Experts interviewed by Bloomberg agency on average expected an increase of 2.5 million barrels.
At the same time, commercial reserves of gasoline increased by 2.53 million barrels and distillates decreased by 242,000 barrels.
“Vigorous exports and falling imports due to the Keystone pipeline shutdown led to a significant drop in crude inventories,” wrote Kplr lead oil analyst Matt Smith. – Refinery utilization has fallen to its lowest in seven weeks, which has somewhat limited the reduction in reserves, as has the release of 3.7 million barrels from strategic reserves.”
Additionally, market participants are keeping an eye on the coronavirus situation in the PRC.
“Despite skyrocketing illness rates and reports of overcrowded hospitals, Chinese authorities are not quarantining cities, which means energy demand is rising as the world’s second-largest economy gets back on track,” Sevens Report Research quoted MarketWatch analysts as saying.
Oil prices are declining in trading on Friday, continuing to fall after a drop in the previous session.
The cost of February futures for Brent at London’s ICE Futures Exchange was $80.91 per barrel by 7:14 a.m. (approx. 0.37%), down $0.30 (approx. 0.37%) from the close of previous session. Those contracts fell by $1.49 (1.8%) to $81.21 per barrel at the close of trading on Thursday.
The price of WTI futures for January at electronic trades of the New York Mercantile Exchange (NYMEX) is $75.75 per barrel by that time, which is $0.36 (0.47%) lower than the final value of the previous session. The contract fell by $1.17 (1.5%) to $76.11 per barrel at the end of last session.
However, both grades may gain more than 7% during the week.
The market was buoyed this week by the International Energy Agency raising its 2022 oil demand growth estimate by 140,000 barrels per day (bpd) to 2.3 million bpd. The 2023 demand growth forecast was also raised by 100k bpd to 1.7 million bpd.
On the other hand, tighter monetary policy of the world’s major central banks has put pressure on oil quotations. On Thursday, the European Central Bank (ECB) and the Bank of England decided to raise key rates – by 50 basis points. The day before, the Federal Reserve (Fed) also raised rates by 50 bps to 4.25-4.5% per annum.
Investors are concerned that tight monetary policy may cause an economic slowdown and, consequently, a decline in demand for oil.
Oil prices rose for the second consecutive session on expectations of increased demand in China as a result of easing quarantine restrictions while supply in the market decreased due to the closure of the Keystone oil pipeline.
Canada’s TC Energy, which suspended operation of the pipeline last week, is troubleshooting the issues and has not yet presented a plan to bring Keystone back online.
The shutdown of the pipeline, which connects oil fields in southern Canada and refineries in the U.S. Gulf Coast, reduced global supply by 600,000 barrels per day (bpd), while “the supply-demand balance there was already weak,” said Manish Raj, chief financial officer of Velandera Energy Partners, cited by Market Watch.
The price of February futures for Brent crude oil on London’s ICE Futures exchange is $79.12 a barrel by 7:10 a.m. CST on Tuesday, up $1.13 (1.45%) from the previous session’s close. Those contracts rose $1.89 (2.5%) to $77.99 a barrel at the close of trading on Monday.
The price of WTI futures for January oil grew by $1.01 (1.38%) to $74.18 per barrel at electronic trades of New York Mercantile Exchange (NYMEX). By the close of preious trading the cost of those contracts rose by $2.15 (3%) to $73.17 a barrel.
Both types of oil finished last week at their lowest level since December 2021, losing more than 11% over the week.
China’s ambassador to the United States, Qin Gang, said Monday that Beijing would continue to ease quarantine restrictions and expect to see an increase in foreign tourist arrivals in the near future. But the incidence of COVID-19 in the country continues to rise, and experts at the consulting firm FGE warned of the possibility of an unexpected tightening of restrictions by Beijing.
“Investor optimism about China’s easing of covey measures and likely increase in oil demand outweighs fears of a downturn in other parts of the world,” said Vishnu Varathan, an analyst at Mizuho Bank Ltd. in Singapore, quoted by Bloomberg.
