Natural-gas futures suffer a nearly 15% weekly drop as demand prospects weaken
Oil prices fell on Friday, settling lower for the week, as a stronger dollar cut global demand for U.S.-priced commodities and a slide for the stock market sullied the risk-taking mood.
Meanwhile, natural-gas futures took a plunge that left them down nearly 15% for the week — the largest such loss in nearly three years, as weather forecasts dulled prospects for demand.
Oil prices had climbed Thursday as traders contemplated data showing a blip higher in monthly OPEC output even as future cuts loom, as well as a recent report of a weekly decline in U.S. crude supplies and production. Gains picked up late Thursday after a news report said Saudi Arabia plans to cut shipments to U.S. refiners to avoid an expansion of U.S. stockpiles.
On Friday, West Texas Intermediate crude for January delivery CLF9, -2.57% fell $1.38, or 2.6%, to settle at $51.20 a barrel on the New York Mercantile Exchange. The contract was down 2.7% for the week.
Global benchmark February Brent crude LCOG9, -1.95% fell $1.17, or 1.9%, to $60.28 a barrel on ICE Futures Europe, down about 2.3% for the week.
U.S. stocks traded lower as signs of China’s economic slowing hit equities and raised fresh concerns about the economic giant’s thirst for oil moving forward. The U.S. Dollar Index DXY, +0.34% meanwhile, rose 0.6%, as growth worries and geopolitical jitters sparked haven-related flows.
In its closely watched monthly oil market report, the International Energy Agency said Thursday that crude output by OPEC rose by 100,000 barrels a day on month to reach 33.03 million barrels a day in November. Saudi Arabia — the de facto head of OPEC — churned out 410,000 barrels a day to a historic high of 11.06 million barrels a day.
But the agency’s report stands in contrast to OPEC’s own monthly oil market data, which was released Wednesday and showed a slight decline in the cartel’s November output despite ballooning Saudi production.
Both reports come less than a week after OPEC agreed with its nonmember partner producers — led by Russia — to collectively cut crude output by 1.2 million barrels a day starting in January. OPEC is slated to curb production by 800,000 barrels a day, while Russia and nine allied producers will shoulder the remainder of the cuts.
Saudi Arabia’s reported plan to cut shipments to U.S. refiners “shows the Saudis are very serious about balancing the market,” said James Williams, energy economist at WTRG Economics. “They want stocks (supplies) down to the five-year average for the [Organization for Economic Cooperation and Development] countries.”
“Putting more emphasis on the U.S. makes sense because the U.S. reports its data weekly and it will move the market faster than other countries,” he said.
Baker Hughes BHGE, -2.63% on Friday reported that the number of rigs drilling for oil in the U.S., a key barometer for activity in the sector, declined for a second week in a row.
Back on Nymex, January gasoline RBF9, -2.39% fell 3% to $1.434 a gallon, ending down 3.5% for the week. January heating oil HOF9, -1.46% fell 1.7% to $1.845 a gallon, with prices marking a weekly decline of 2.2%.
Taking a look further ahead at the bigger picture for the energy market, Rob Young, portfolio manager of the ICON Natural Resources Fund, said he expects “energy to be a leadership sector within the natural resource universe” over the next one to two years.
“We like energy from an intrinsic value perspective,” he said. The energy sector also carries with it a strong earnings backdrop (despite what we’ve seen in the commodity), coupled with a credit market that is reflecting a relatively stable environment compared to the broader market.”
January natural gas NGF19, -8.17% dropped 7.2% to settle at $3.827 per million British thermal units, suffering a weekly drop of 14.7%—the largest such decline since for a front month since the week ended Jan. 15, 2016, according to Dow Jones Market Data.
The “outlook for warmer-than-normal to normal weather through the end of the month” weighed on prices, said WTRG’s Williams. “That, coupled with record high production of gas are the main reasons, despite very low levels of gas in storage for this time of year. Trading gas at this time of year is a weather trade and it varies with the forecasts.”
The EIA on Thursday reported that domestic supplies of natural gas fell by 77 billion cubic feet for the week ended Dec. 7. Analysts polled by S&P Global Platts forecast a decline of 79 billion.
