MW Oil prices set for a more than 4% weekly gain on supply risks tied to the Russia-Ukraine war
By Myra P. Saefong and Joseph Adinolfi
Oil futures climbed on Friday, with the U.S. crude benchmark up by more than 5% for the week as traders continued to monitor escalating tensions between Ukraine and Russia, which is among the world's biggest oil producers.
Still, downbeat economic data from Europe fed concerns over a potential slowdown in energy demand, as European business activity sank to a 10-month low, helping to limit any gains in the price of oil.
Price moves
-- West Texas Intermediate crude for January delivery CL00 CL.1 rose 38 cents, or 0.5%, to trade at $70.48 a barrel on the New York Mercantile Exchange. Based on the front month contract, prices traded up by more than 5% for the week, FactSet data show.
-- January Brent crude BRN00 BRNF25, the global benchmark, climbed by 26 cents, or 0.4%, to $74.49 a barrel on ICE Futures Europe, eying a weekly rise of 4.9%. Brent and WTI were poised to score their best weekly performance since the week ended Oct. 4.
-- December gasoline RBZ24 shed 0.4% to $2.0513 a gallon, while December heating oil HOZ24 fell by 0.4% to $2.2663 a gallon, with both trading higher for the week.
-- Natural gas for December delivery NGZ24 traded at $3.156 per million British thermal units, down 5.5% for the session, but trading over 11% higher for the week.
Market drivers
"The resurgence in geopolitical tensions is serving as a bullish catalyst, but it is not an influence that will persist in perpetuity," analysts at Sevens Report Research wrote in Friday's newsletter. "The reality of weakening economic trends amid a growing amount of sidelined supply is likely to send [WTI] futures back below $70 and even below $60 in the months ahead."
"Conversely, a more meaningful rise in geopolitical tensions that threaten, or worse, directly impact, regional oil and gas infrastructure in Eastern Europe and Russia has the potential to send oil back beyond $80," they said.
Oil prices had traded lower early Friday following downbeat economic data from Europe. The HCOB flash eurozone composite purchasing managers index fell to a 10-month low in November, rekindling concerns about a recession in the eurozone.
Gauges of activity in the services and manufacturing sectors left economists' disappointed, but oil traders focused on the weak manufacturing data, which helped send prices lower on Friday, according to Ole Hansen, head of commodity strategy at Saxo Bank.
"Overall, I believe the weak demand outlook highlighted by the dismal manufacturing PMI in Europe today remains a key factor which has helped offset strengthening refinery margins amid northern hemisphere cold spell and a non quantifiable geopolitical risks related to the Russia-Ukraine escalation," Hansen said in response to a question from MarketWatch via email.
Oil prices rallied on Thursday after Ukraine said Russia had used an intercontinental ballistic missile, capping off a week of escalating tensions between the two neighbors as Russia's invasion dragged on.
Prices for both U.S.-traded crude and the international benchmark were on track to rise this week, with Brent crude headed for its best performance since early October.
'The elephant in the room is the upcoming OPEC meeting.'Manish Raj, Velandera Energy Partners
Still, "the elephant in the room is the upcoming OPEC meeting," said Manish Raj, managing director at Velandera Energy Partners, referring to major oil producers known as the Organization of the Petroleum Exporting Countries, who will also be meeting with their allies, including Russia. The "popular wager" is that the group, known as OPEC+, will roll over, or extend, their production cuts again, he said.
"We expect OPEC to hammer down on the overproducers that include Iraq, Kazakhstan, Nigeria and Russia," said Raj. In November, OPEC+ announced that it would extend the 2.2 million barrel-per-day voluntary output cuts by one month to the end of December.
For the Dec. 1 meeting, the CME Group's OPEC Watch tool show a probability of 49.27% for no change to production plans, and a probability of 45.69% that the group will decide to delay an output increase.
Natural-gas prices, meanwhile, moved lower on Friday, but after posting sharp gains in recent sessions, were on track for a more than 11% rise for the week. Prices touched their highest level in a year on Thursday.
Read: Why natural-gas prices have rallied this week to a one-year high
Forecasts for colder weather, Donald Trump's win in the U.S. presidential election, and the escalation in the Russia-Ukraine war have all contributed to a rise in natural-gas prices, said David Grumhaus, president and chief investment officer at Duff & Phelps.
Trump's win is bullish for long-term prices because he is likely to encourage further natural-gas demand, while also loosening regulation around permitting for both pipelines and LNG export facilities, Grumhaus said.
The escalation in the Russia-Ukraine war not only tempers expectations of a cease fire that could bring more gas back to Europe but Russia has, as of Nov. 16, halted supplies to Europe via Ukraine of a large remaining gas contract that was not scheduled to expire until year end, he said.
Weather is also a "wild card" and a harsh winter in the U.S. or in Europe could "Certainly push prices a lot higher," said Grumhaus.
-Myra P. Saefong -Joseph Adinolfi
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November 22, 2024 10:28 ET (15:28 GMT)
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