Recession Talk Reigns Supreme
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In this week’s edition of oil and gas industry hits and misses, one of Rigzone’s regular market watchers focuses on recession talk, an unusual delay in a key crude inventory report, oil and gas prices 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: Recession talk reigned supreme and an unusual delay in a key crude inventory report left some traders holding the bag during this holiday-shortened trade week. In speaking about the successive interest rate hikes needed to curb inflation, U.S. Federal Reserve Chairman Powell admitted the possible recessionary impact of this policy. The perception of lower economic growth had energy commodities moving lower with August WTI falling to a six-week low of $103.70 per barrel. Brent crude fell as low as $107 per barrel at one point. WTI has traded lower eight out of the past 10 trading sessions with Brent down seven of 10 days.
This week’s EIA Weekly Petroleum Status Report has been delayed until next week as the agency cited system problems. The API reported that inventories rose by a substantial 5.6 million barrels while the WSJ survey predicted a drop of 1.2 million barrels. The EIA is forecasting a rise of 14 percent in U.S. Gulf of Mexico oil production for 2023 while natural gas is expected to increase four percent. All three major U.S. stock indexes made considerable gains this week after a precipitous fall early-on. The U.S. Dollar Index sank to a one-month low which only served to fuel crude buying. The average U.S. gasoline price at the pump slipped some this week to $4.97 per gallon vs. the record-high $5.02 per gallon last week and $3.07 a year ago. The Biden administration has called on the U.S. Congress to enact a 90-day moratorium on the federal gasoline tax. However, there is wide expectation that this will not be passed. Meanwhile, U.S. refinery capacity is down for the second year in a row, dropping from 18.1 million barrels per day at 01/01/21 to 17.9 million barrels per day at 01/01/22. Total capacity lost over just the past three years has been 1.3 million barrels per day.
All three major stock indexes were higher on the week despite the negative tone coming out of the Fed. The U.S. Dollar has gyrated but looks to settle lower for the week. The downward move in the greenback is normally supportive for oil prices as traders shift their risk appetites but that did not happen this week.
Rigzone: What were some market surprises?
Seng: The EIA not being able to publish their Weekly Petroleum Status Report this week had to have impacted those who took positions on the forecasts that precede the actual data. That report’s release can literally result in millions of dollars in gains or losses each week. Natural gas prices continued their two-week downtrend despite concerns in Europe over wintertime inventory levels. The multi-month outage at Freeport’s LNG facility has lowered domestic U.S. prices while cutting much-needed supplies for Europe. Estimates currently show EU storage levels at only 70 percent of normal by November 1 largely due to the cutback of imports from Russia. Henry Hub natural gas for July has fallen from near $9.70/MMBtu to about $6.25/MMBtu in just 11 sessions. Prices have not been this low since April. We are now at price levels similar to last fall when extended summer heat resulted in prices over $6.00/MMBtu. Meanwhile, U.S. LNG exporters continue to see interest in long-term supply contracts as Venture LNG announced two separate 20-year deals with German utility EnBW AG. This week’s EIA Natural Gas Storage Report indicated a bearish injection last week of 74 billion cubic feet vs. forecasts calling for 66 billion cubic feet and last year’s 49 billion cubic feet and a five-year average of 82 billion cubic feet.
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