Oil pushes on as price action swings upwards
After a dismal week, oil appears to be rallying again. Natural gas is still performing strongly on warm weather forecasts in key demand geographies.
Oil started a comeback on Monday, and it appears to have pushed on significantly in early Tuesday trading.
Key benchmarks, which had fallen fairly dramatically across last week, made significant gains in the Monday session. As of Tuesday morning, WTI had hit $65.83 – over $2 more than the weekend lows.
Brent had climbed too, reaching $69.07, knocking on the $70 level.
A weaker greenback has helped spur up purchases of dollar-denominated crude. Traders may still be feeling bullish, even with the build of global Delta-variant COVID-19 cases.
This is all very positive for the markets but concerns over COVID still loom large.
Key crude importers have put restrictions on movement once more as infections rise. For instance, China has closed some important crude-importing hubs. Both it and the United States have put flight-capacity restrictions in place, too, leading to a softening of jet fuel demand projections.
Oil producers are still walking the tightrope between supporting prices and oversupply. We know OPEC+ has committed to its monthly production boosts starting in August. We’ve also seen US output climb to 11.4m bpd in the latest weekly report.
The EIA crude oil inventories report did show another strong drawdown, however, suggesting US demand is still relatively high at the moment. In the week ending August 13, US crude reserves dropped 3.4m, some 6% lower than the five-year average.
Oil rig counts increased for a third successive week. According to Baker Hughes, eight new rigs were added to America’s oil infrastructure last week, bringing the level up to 405. This is now the highest level since April 2020.
Natural gas trading
Natural gas prices start the week buoyed by weather forecasts suggesting high cooling gas demand is on the way.
At the start of the week, Natural Gas Weather noted high temperatures in the South, Northwest and Midwest would be a key demand driver. That said, Natural Gas Weather’s forecast did suggest these would ease into the next week.
Looking at Europe, 12 out of the next fifteen days are gas-weighted degree days, according to Bespoke Weather Services.
Prices were floating around the $3.90 mark as of Monday morning.
Key US export infrastructure was shuttered last week for essential maintenance but could be back online soon. That would help the US punch up its LNG export levels. However, there is some debate over how much this will increase. Either way, expect to see more American-made LNG on global markets in the coming months.
At present, however, US gas output is down, or at least fell last year. According to the EIA, annual natural gas production from oil wells declined in the combined five major U.S. onshore crude oil-producing regions for the first time since 2016 in 2020. It was down 1.5% year-on-year.
Possibly not too much to worry about, especially when the closed infrastructure mentioned above comes back online.
Working gas in storage was 2,822 Bcf as of Friday, August 13, 2021, according to EIA estimates. This represents a net increase of 46 Bcf from the previous week. Stocks were 547 Bcf less than last year at this time and 174 Bcf below the five-year average of 2,996 Bcf.