Futures Movers: Oil futures on track to finish at multiyear highs as Russia’s offer to boost natural-gas supplies may come with a catch
Oil futures climbed on Tuesday, on track 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.
“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.”
West Texas Intermediate crude for November delivery
CLX21,
+1.37%
rose $1.07, or 1.3%, to $83.51 a barrel on the New York Mercantile Exchange. The contract, which expires at the end of Wednesday’s trading session, settled at $82.44 on Monday, the highest front-month contract finish since Oct. 21, 2014. December WTI
CL00,
+1.38%
CLZ21,
+1.38%,
the most actively traded contract, was up $1.02, or 1.3%, at $82.71 a barrel.
December Brent crude
BRN00,
+1.17%
BRNZ21,
+1.17%,
the global benchmark, traded at $85.20 a barrel on ICE Futures Europe, up 87 cents, or 1%. Brent on Monday pushed above $86 a barrel to hit a three-year intraday high, but retreated to finish slightly lower.
Brent crude was back on the rise 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. The compliance shortfalls mean that OPEC has made less supply than agreed over the past three months, coming up short by around 750,000 barrels a day in September alone, he noted.
“This is attributable to production problems in Angola and Nigeria that will not be resolved anytime soon,” Fritsch wrote. “For as long as Saudi Arabia and other countries with sufficient spare capacities are unwilling to offset these outages by stepping up their own output, OPEC+ is also likely to produce less oil than agreed in the coming months, thereby keeping supply tight.”
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.
Meanwhile, U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.56 million in September, representing a 1.6% decrease from the previous month, U.S. Census Bureau reported Tuesday.
“Bottom line for oil, futures just notched their eighth-consecutive weekly rise and prices are technically overbought with WTI in the low $80s here,” they 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,
-0.19%
was down 0.1% at $2.484 a gallon, while November heating oil
HOX21,
+0.41%
tacked on 0.3% to $2.556 a gallon.
November natural gas
NGX21,
+1.22%
traded at $5.071 per million British thermal units, up 1.6%. Prices shook off early Tuesday declines after losing 7.8% on Monday.
